Bank advances to private sector show 6.1% growth

Banking sector posts pre-tax profit of Rs150.4b in Apr-Jun quarter

KARACHI: The banking sector showed a broad-based and robust growth in advances to the private sector in the quarter ended June 30, 2017, according to the Quarterly Performance Review of the Banking Sector released by the State Bank of Pakistan (SBP) on Friday.



The growth in advances is also the prime reason behind an 8.3% widening - the highest among corresponding quarters since 2008 - in the asset base.

Gross advances (domestic) to the private sector increased 6.1% in April-June 2017 in comparison to the 4% growth recorded in the corresponding period of previous year.

Besides seasonal financing needs for commodity procurement, the financing demand has come from various sectors including chemical/pharmaceutical, production and transmission of energy, agri-business, food and allied products, construction, transport, storage, etc.

Moreover, the continued growth in auto financing pushed consumer financing up, which surged 5.5% during the April-June quarter compared to 5.3% in the same quarter of previous year.



Major growth in the overall consumer financing portfolio was driven by the growth in auto loans which soared 9.4%.

The banking sector earned profit (before tax) of Rs150.4 billion with strong return on assets (ROA) of 1.8% and return on equity (ROE) of 22%.

Encouragingly, interest earnings (year to date) increased 1% in the second quarter of calendar year 2017 against 8.6% decline during the same period of last year on account of income on advances.



“Capital adequacy ratio of the banking sector at 15.6% is well above the minimum required level of 10.65% and (shows) that banks have enough buffers to meet additional financing of the market,” said the performance review.

The surge in advances may be attributed to enabling macroeconomic conditions such as monetary easing, which has lowered the cost of borrowing and positive feedback from the real economy - particularly consistent activity in large-scale manufacturing.

The asset quality of the banking sector improved further as gross non-performing loans (NPLs) ratio went down to 9.3% as of end-June 2017 from 9.9% as of end-March 2017 (and 11.1% as of end-June 2016).

Investments increased 5.6% and government papers remained the prime attraction. There was a change in investment pattern, though, as banks mostly invested in short-term Market Treasury Bills (MTBs).

A continuous rise in investment in government securities further strengthened the already comfortable liquidity position of the banking system, the review said.

Deposit base of the banking sector widened 6.5%, slightly lesser than 6.8% in the second quarter of calendar year 2016. The deceleration in the deposit growth was mainly caused by a dip in financial institutions’ deposits - which are transitory in nature.

On the other hand, customer deposits - a relatively more stable funding source and comprising 96.5% of the overall deposit base - surged 7.7%, higher than 6% during the corresponding period of previous year.

Published in The Express Tribune, September 9^th, 2017.

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