Pakistan witnesses 11.5% growth in banking sector in H1
CY24
The State Bank of Pakistan (SBP) has
reported that the banking sector's balance sheet grew by 11.5% in the first
half of CY24 (January to June), primarily due to increased investments in
government securities amid high demand for bank credit from the government.
The SBP’s Mid-Year Performance
Review for 2024 provides insights into the banking sector's performance and
financial markets, alongside the results of the Systemic Risk Survey (SRS),
which highlights expert opinions on current and potential risks to financial
stability.
While advances in the banking sector
experienced modest growth due to net retirements by the private sector, there
was a noticeable revival in long-term financing for SMEs. However, the decline
in private sector advances was significantly less than in H1 CY23.
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On the funding front, deposits rose
by 11.7% in H1 CY24, largely propelled by increases in savings and current
deposits. This surge in asset growth required additional funding, leading to
sustained reliance on borrowing.
The Review indicates that the asset
quality of the sector remains satisfactory, with only a slight increase in
gross non-performing loans (NPLs). Additionally, the total provisioning
coverage against NPLs improved to 105.3% by the end of June 2024. Following the
implementation of IFRS-9, banks have begun providing general loan loss
allowances for performing loans. Despite this, earnings have slowed due to a
decrease in return on advances and a contraction in net interest margins.
Non-interest income sources, such as fee income and trading gains from
government securities, helped support profitability.
Key performance indicators showed a
decline, with Return on Assets (ROA) at 1.2% (down from 1.5% in June 2023) and
Return on Equity (ROE) at 20.4% (down from 26.0% in June 2023). However, the
banking sector's solvency position remained robust, with the Capital Adequacy
Ratio improving to 20.0% (up from 17.8% in June 2023), well above the minimum
regulatory requirement.
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The Review also notes a gradual
improvement in macroeconomic conditions, leading to relatively lower stress in
domestic financial markets during H1 CY24.
According to the 14th wave of the
SRS (July 2024), the top three risks identified by survey participants include
the energy crisis, volatility in commodity prices, and foreign exchange risk.
Nonetheless, there is a general confidence in the stability of the financial
system and the regulatory oversight in place.
Source: Profit Pakistan