Banking sector grows by 11.5% in H1 CY24

The SBP’s Mid-Year Performance Review for 2024 provides insights into the banking sector's performance and financial markets
 

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

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