Banking sector assets increase 2.17% to 28.79 billion rupees by end of September

KARACHI: The value of assets held by the banking sector rose 2.17% to 28.790 billion rupees at the end of the September quarter compared to the previous quarter, the central bank said on Tuesday, as the economy recovered post-pandemic boosted demand for loans from businesses and consumers. .

The State Bank of Pakistan (SPB in its quarterly report “Banking System Statistics for July-September 2021” said assets held by banks increased 20.9% year-on-year, exceeding growth of 0, 44% achieved during the corresponding period last year.

“This expansion was particularly contributed by the advances of the domestic private sector, which increased by 3.8% during the third quarter of 2021 (increase of 16.6% year-on-year) against a contraction of 0.5% during of the corresponding period of last year, ”the report said.

“The increase in advances has remained widespread, reflecting a general recovery in economic activity as well as the impact of rising input prices.”

Net advances from banks reached Rs 9,173 trillion in July-September, compared to Rs 8,808 billion a quarter earlier.

The healthy growth of credit to the private sector is quite encouraging, as it will support the low incidence of credit in Pakistan as measured by the domestic private credit-to-GDP ratio, according to the report.

In addition, the SBP refinancing programs announced in the aftermath of Covid-19, in particular the Temporary Economic Refinancing Facility (TERF), have supported credit growth to the private sector in recent quarters.

“However, banks increased credit disbursements from their own sources during the period under review and the trend continues after the quarter,” he added.

Construction and housing finance also emerged as notable sectors, which are experiencing healthy increases in credit underwriting.

It is important to note that the SBP assigned targets for housing finance to banks in July 2020 and the government housing finance margin subsidy program (Mera Pakistan Mera Ghar program) announced in October 2020, played a key role in improving overall credit to the housing sector.

“Banks are actively participating in these initiatives to increase mortgage financing that will help more of the population build and buy homes.”

On the financing side, bank deposits increased 0.36% to 20.516 billion rupees in the quarter. This compares to a growth of 0.80% over the same period of the previous year.

On a year-over-year basis, deposits reached an encouraging growth of 16.9%. The report says the trends in key financial strength indicators remain encouraging.

The banking sector’s credit risk indicators improved further, with the ratio of gross non-performing loans (NPLs) to total loans declining to 8.8% at end-September 2021, from 9.9% a year ago .

“This improvement is explained by an increase in loans and a decrease in new defaults.”

Due to the increase in provisions for bad debts, the provision coverage ratio improved to 88.9% at the end of July-September 2021, compared to 84.6% a year earlier. As a result, the ratio of net nonperforming loans declined to 1.1% at the end of the third quarter of 2021, from 1.7% the previous year, indicating a lower residual risk to the creditworthiness of delinquent loans.

Banking sector earnings indicators have moderated somewhat, with return on assets of 0.95% in the third quarter of 2021, up from 1.13% in the same period of 2020.

The sector’s solvency remained strong as the capital adequacy ratio of 17.9% remained well above the minimum national regulatory benchmark of 11.5% and the global standard of 10.5%.

“The results of the quarterly stress tests also reveal that the banking sector is likely to remain resilient even in the event of reasonably severe economic shocks over an extended period,” the report said.

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