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Satisfactory performance of banking sector in Q3 of 2017

During Q3CY17, Banking sector’s performance, both on QoQ and YoY basis, has remained quite satisfactory in Pakistan. Presently the State Bank of Pakistan (SBP) revealed in the report, less than normal seasonal decline in advances along with enhanced liquidity and strong solvency. Despite the seasonal net retirements in commodity financing and sugar sector, the overall gross advances (domestic) to private sector have fallen slightly; considerably lesser than the established third quarter financing dip.
State Bank also mentioned that the advances demand from textile and other sectors have been promising.


Noticeably, the share of fixed investment (long term) advances in the total advances is persistently growing. Banks in the country have continued to invest in short term MTBs while investment in PIBs and Sukuk have fallen. The deposit mobilization has stayed on track, basically, on the back of growth in saving and fixed deposits.

SBP also mentioned that the asset quality has enhanced as NPLs to gross advances (infection) ratio has moved down to 9.2 percent as of end September 2017 from 9.3 percent as of close June 2017. However, profitability has moderated more with the banking sector earning profit (before tax) of Rs 195.3 billion during January-September, 2017 (ROA of 1.6 percent and ROE of 19.1 percent). Furthermore, Net Interest Income (NII) has enhanced YoY basis on account of growing interest earned on advances. Capital Adequacy Ratio of the banking sector at 15.4 percent is well above the minimum required level of 10.65 percent and advocates that banks have enough buffers available to meet additional financing need of the market. State Bank highlighted that the overall risk profile of the banking sector remains within tolerable bounds in Q3CY17.


This can be gauged through BSSM (Banking Sector Stability Map) which depicts risk levels, in relation to historical situation; along seven dissimilar dimensions. The easy monetary policy stance, as manifested in lower WALR (weighted average lending rates), has led to improvement in the repayment capacity of the borrowers. Further, there is a downward trend in both the number of non-performing borrowers and quantum of fresh NPLs. The fund based liquidity position of the banking sector reveals availability of sufficient ready-funding buffers to meet contractual and unforeseen obligations. Almost 54.5 percent of total assets constitute liquid portfolio in Q3CY17 as against to 53.7 percent in Q2CY17. While in the last quarter the seasonal build-up of liquid assets was concentrated in the non-earning cash and balances with treasuries, increasing inter-bank activity for placement of liquidity has led to parking of liquid assets in earning liquid assets i.e. call and repo lending.


On the other hand, it is also calculated that the market share of Islamic banking assets and deposits in overall banking industry was registered at 11.9 percent and 13.7 percent, respectively by close September, 2017. Profit before tax of Islamic banking industry was recorded at Rs. 17.6 billion by end September, 2017 as against to Rs. 12.1 billion in the same quarter last year. Other profitability shows counting return on assets (before tax) and return on equity (before tax) were registered at 1.2 percent and 18.1 percent, respectively. It is also said that the Islamic deposit growth again stands out, and it increasingly becomes evident that Islamic banking will sooner or later become a major driver of the sector. On-forth of the quarterly deposit flows were contributed by Islamic banks during the period, in sharp contrast to muted growth at commercial banks.


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