Growth in non-performing loans slows down
Total bad loans stood at Rs460 billion at the end of June compared to Rs457 billion in the March quarter.
NPLs have been a leading challenge for banks for the last two years from June 2008, which saw average quarterly growth of 9.7 per cent, the SBP said in its Quarterly Performance Review of the Banking System for the quarter ended June 2010.
“The deceleration in NPLs and contained loan loss charges preserved the earnings of the system from any significant deterioration which had remained a key feature in recent quarters,” the SBP said.
Profit after tax of banks stood at Rs36 billion for the first half of calendar year 2010, which is higher than Rs29 billion in the corresponding period of last year.
Return on Assets (ROA) stayed at last quarter’s level at 1.8 per cent, slightly higher than the corresponding period of previous year, though over this period the asset composition of the system significantly shifted towards government papers which carry lower return as compared to loans and advances.
Aggregate earnings of the system that have been concentrated in relatively large-sized banks for the last two years or so showed some improvement for individual banks, as the number of banks with positive bottom line remained higher than last year’s statistics.
The SBP said the banking industry recorded a 5.4 per cent growth in its asset base to Rs6,782 billion during the April-June quarter. In the previous January-March quarter, the asset base had contracted by 1.4 per cent.
The increase in the asset base, which was well supported by growth in deposits, mainly occurring in banks’ balances, interbank lending, government papers and public sector commodity finance.
The banking industry’s deposits rose to Rs5,128 billion in the quarter under review compared with overall deposits of Rs4,774 billion in the previous quarter. The strong growth in deposit base that was largely invested in liquid assets resulted in further improvement of liquidity profile of the system.
Advances of the banking system increased by 1.9 per cent to Rs3,341 billion during the quarter under review. However, this growth was largely contributed by growth in public sector’s commodity finance which increased by 51.6 per cent.
Lending to private sector, after witnessing a slight growth during the last quarter, came down reflecting the trend that set in the last quarter of CY08 ie a gradual increase in public sector credit and contraction in lending to private sector.
However, continued macro-economic stresses like inflationary spiral, power crisis and poor law and order situation took their toll on commercial activities and undertakings. This was evident from stagnant private sector credit figures of the previous quarter and the negative growth of 1.1 per cent in the quarter under review.
The SBP said the results of stress tests indicate the banking system’s adequate capacity to withstand unusual shocks in the major risk factors and avert the emergence of any systemic crisis from such shocks.
Published in The Express Tribune, October 7th, 2010.
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