Central Bank assesses performance of banks in mid-year
assessment
SBP has released its mid-year performance assessment of the banking sector, highlighting the sector's steady performance and resilience.
The State Bank of Pakistan published the mid-year performance review, covering the performance and stability of Pakistan's banking sector for the period from January to June 2023 (H1CY23).
The review also briefly touches upon the performance of financial markets and presents the findings of the Systemic Risk Survey, which reflects the opinions of independent experts regarding significant potential risks to financial stability.
The review underscores that the macroeconomic environment remained challenging throughout the first half of CY23. Domestic financial conditions tightened, and the operating environment was characterized by elevated inflation and prolonged uncertainty. Nevertheless, the banking sector's balance sheet expanded by 14 percent during H1CY23.
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This growth in the asset base was primarily fueled by investments in government securities. Additionally, banks saw strong inflows of deposits, and borrowing remained noticeable during the period.
The report also notes that the advances of the banking sector experienced muted growth in H1CY23. While private sector advances declined, the public sector secured additional financing, primarily for commodity finance operations.
Encouragingly, there was an improvement in asset quality indicators, with the net non-performing loans (NPLs) to loans ratio decreasing to 0.45 percent by the end of June 2023 (compared to 0.68 percent in June 2022) as banks set aside a higher amount of provisioning from their steady earnings.
Profitability indicators also saw a noticeable improvement, with the return on assets (ROA) increasing to 1.5 percent in H1CY23 (compared to 1.0 percent for CY22).
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Higher earnings subsequently contributed to an enhancement in the Capital Adequacy Ratio (CAR) of the banking sector, which reached 17.8 percent by the end of June 2023 (compared to 17.0 percent at the end of December 2022). Solvency indicators showed further improvement, indicating the banking sector's improved ability to withstand severe hypothetical shocks, as indicated by the latest stress testing results.
Finally, the review includes the findings of the 12th wave of the Systemic Risk Survey conducted in July 2023. The survey suggests that the primary potential risks facing the financial system include foreign exchange risk, rising domestic inflation, and political uncertainty. However, respondents expressed confidence in the stability of the financial system and the capabilities of regulatory authorities.
Source: Pakistan Observer