Banks’ profitability grows 1.5%, amounts to Rs52.9b

Asset base increases 0.9% on quarter-on-quarter basis

KARACHI: The profitability of Pakistani banks in the first three months of 2016 amounted to Rs52.9 billion, up 1.5% or Rs816 million from the comparable quarter of 2015.

According to the quarterly banking statistics released by the State Bank of Pakistan (SBP) on Thursday, the Net Interest Margin (NIM) of banks narrowed down to 3.9% at the end of March, down from 4.4% a year ago, mainly because of a slowdown in the pace of profit growth.



Solvency of the banking sector, expressed as risk-weighted capital adequacy ratio (CAR), observed downward adjustment to 16.3% in March from 17.4% in March 2015. However, the SBP noted that the industry-wide average CAR was still “well above” the minimum local required threshold of 10.25% and international benchmark of 8.625%.

Without naming the bank, the SBP said the slight drop in the CAR is due to the one-off accounting adjustment by a public-sector bank besides continued growth in private-sector advances and dividend payments by profitable banks.

The asset base of the banking sector registered an increase of 0.9% on a quarter-on-quarter basis in Jan-Mar. This growth was mainly contributed by banks’ investment in government securities, mostly Pakistan Investment Bonds (PIBs), as overall advances observed seasonal decline owing to net retirements against commodity financing and Small and Medium Enterprises (SMEs) financing.



However, the SBP said the seasonal contraction 0.6% in gross advances was less than the average decline of 1.2% during the same quarter of the last two years. It attributed the relatively small contraction in advances to the positive growth of 1% in the loans to the private sector, mainly comprising fixed investment advances.



Deposits, which are sensitive to a seasonal fall in overall advances, slightly declined by 0.6% in March on a quarterly basis, with a dip in both current and fixed deposits. However, savings deposits increased 3.6% over the quarter. Consequently, borrowings from financial institutions (mostly the SBP) provided the funding necessary for asset expansion.

Published in The Express Tribune, June 10^th, 2016.

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