Quarter-on-quarter: Asset base of banking sector increases 4.6%

Comes on back of rise in private-sector advances, investment in sovereign papers

KARACHI: The asset base of the banking sector registered a quarter-on-quarter increase of 4.6% in the last three months of 2015, according to the Quarterly Performance Review (QPR) of the Banking Sector for October-December 2015 released by the State Bank of Pakistan (SBP) on Thursday.

An increase of 7.8% in private-sector advances, including both seasonal and for fixed investment, and a moderate rise in the banks’ investment in sovereign papers were the major contributors to this increase in assets, the SBP said.

The quarter under review was marked by quarter-on-quarter growth of 6.9% - or 12.6% increase in annual terms - in the deposit base of the banking sector. The rise was primarily driven by growth in current account and fixed deposits.

The asset quality of the banking sector improved largely on the back of improved cash recoveries. Non-performing loans (NPLs)-to-loans ratio decreased from 12.5% in September 2015 to 11.4% in December 2015. The ratio of net NPLs-to-net loans decreased from 2.5% to 1.9% over the same period. This improvement in asset quality indicators advocates continuous decline in risk to the future operating performance and equity of the banking sector.

The profit after tax of the banking sector for 2015 reached Rs199 billion, up 22% from Rs163 billion recorded in 2014. Accordingly, the return on assets (ROA) before tax increased to 2.5% in the quarter ending December 2015 as opposed to 2.2% recorded at the end of December 2014. The profitability of the banking sector was broad-based encompassing large spectrum of banks, the SBP said.

The rise in financing flows to the private sector has improved the utilisation of idle capital as reflected through slight reduction in the capital adequacy ratio (CAR) to 17.3%, which is still above the minimum local required threshold of 10.25% and the international benchmark of 8.625%.

The solvency profile of the banking system remained strong due to healthy profitability and equity injections by a few minimum capital requirement (MCR) non-compliant banks, it said.

Published in The Express Tribune, February 26^th, 2016.

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