November 28, 2022 (MLN): The sustained economic activity during 1HCY22 supported the expansion of the banking sector balance sheet by 16%, the Mid-Year Performance Review (MYPR) on the banking sector issued by the State Bank of Pakistan (SBP) revealed on Monday.
The robust increase in the asset base was mainly driven by the flow of private sector advances and an increase in investments, particularly government securities. Besides sizable mobilization of deposits, banks’ reliance on borrowings increased significantly to finance the expanded balance sheet, it added.
The pace of private sector advances growth during 1HCY22 was the highest in comparable periods of the previous three years.
Improved manufacturing activity, as reflected in double-digit growth in the Large Scale Manufacturing (LSM) index during 1HCY22, higher input prices and SBP’s refinance schemes augmented the overall flow of advances. Individuals and the sugar sector availed a major chunk of financing followed by the textile sector.
Besides noteworthy growth performance, banks’ asset quality indicators further improved. Gross Non-Performing Loans (NPLs) ratio moved down to 7.5% by the end of June 2022 from 7.9% at the end of December 2021.
However, recent catastrophic flooding in many parts of the country may impact the repayment capacity of agri-borrowers of banks and Microfinance borrowers.
The review highlights that baseline profitability indicators moderated, despite strong growth in incomes, mainly due to the impact of a sharp increase in tax charges.
The capital Adequacy Ratio (CAR) of the banking sector slightly edged down to 16.1 percent due to faster growth in asset base and advances.
Nonetheless, the ratio remains well above the minimum regulatory requirement i.e., 11.5%, and the banking sector in general has adequate capital buffers and resilience to withstand the impact of severe stress of macroeconomic conditions and shocks to key risk factors.
The review also covered the results of the 10th wave of SRS (July 2022) based on perceptions of independent market participants. The respondents perceive that the key risks for the financial system are mostly exogenous in nature i.e., global and macroeconomic risks.
The majority of the respondents, however, expressed confidence in the stability of the financial system.
Recent catastrophic flooding in many parts of the country may impact the repayment capacity of agri- borrowers of banks and microfinance borrowers, and that of other borrowers as a second-round effect.
As such, banks as well as MFBs need to make a prudent assessment of the possible impact on lending portfolios and take necessary measures for maintaining the asset quality and resilience of the financial strength of their institutions, the review added.
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Posted on: 2022-11-28T17:48:06+05:00