Macroeconomic challenges could impact financial stability of banks: SBP

September 27, 2018: External sector pressures, fiscal sector vulnerabilities, growing domestic inflation and volatile commodity markets could potentially impact financial stability of the Banking sector over the six months running from July to December of the Year 2018, says the State Bank of Pakistan on the basis of its second Systemic Risk Survey released on Thursday.

During the first half of the Year 2018 running from January to June, the overall risk profile of the banking sector has improved, according to the Central Bank, mainly due to strengthening capital adequacy and improving asset quality.

Capital Adequacy Ratio (CAR) has further strengthened to 15.9 percent; well above the minimum regulatory required level of 11.275 percent. Non-Performing Loans (NPLS) to total loans ratio has receded to 7.9 percent—the lowest level since the first half of the calendar year 2008. Banks’ after-tax earnings (Year to Date), however, have declined by 14.7 percent due to reduced non-interest income, one-off provision expenses, and higher administrative cost.

SBP has issued the Half-Yearly Performance Review (HPR) of the Banking Sector for the 1^st half of CY18. The HPR provides a comprehensive coverage of the performance and soundness of the banking sector and highlights the key issues facing the financial sector.

According to the report, banking sector has performed reasonably well. The asset base of the banking sector has expanded by 4.7 percent during H1CY18 (Year-on-Year (YoY): 9.7 percent). Encouragingly, advances to the private sector have been the key contributor in the asset growth with sugar, energy and cement sectors along with individuals (i.e. sole proprietorships) being the key borrowers. Deposits have observed slight deceleration but remained the mainstay of funds for the banks.