PAK BANKS SHOW CAPACITY TO WITHSTAND SHOCKS

AMANULLAH BASHAR
Dec 28, 2009 - Jan 03, 20
10

The banking system shows strong capacity to withstand unusual shocks in the major risk factors and chances of any systemic risk remain contained. In the wake of traditional pickup in the economic activity during the outgoing quarter, the credit to private sector is likely to gain momentum.

Meanwhile the risk-based capital adequacy ratio (CAR) of all banks operating in the country has improved to 14.3 percent in the quarter ended September 30, 2009, according to Quarterly Performance Review of the Banking System of the State Bank.

During July-September 2009, the overall profitability of the banking system remained fair. However, the earnings were largely skewed towards large and medium-sized banks as the bottom line of most of small sized banks was low or in negatives. Banks posted aggregate pre-tax profit of Rs70.1 billion for the first three quarters of the outgoing year with the Pretax Return on Assets of 1.6 percent (1.2 percent for CY-08), the report added.

Accumulation of year-to-date earnings and equity injections raised the equity base of the banking system. "This growth was also augmented by improvement in revaluation surpluses on equity investments, and the leverage of the system slightly came off," it said and added that improvement in eligible capital and reduction in Risk Weighted Assets (RWA) as the banks shifted their asset mix from private sector credit to investments in federal government papers, improved the risk based CAR.

The asset base of the banking system with marginal growth remained stable during the quarter under review. The deposits base, which grew significantly during the last quarter, contracted over the quarter under review. On the asset side, decline in advances took place in both public and private sector lending. However, lending to private sector corporations in power & energy sector actually showed significant growth.

The non-performing loans (NPLs) of the banking system after showing some letup in the last quarter, again increased during the quarter under review, while the asset base with shift in asset mix from advances to investments and decline in deposit base remained stable. Due to increase in NPLs, the net infection ratio increased to 4.1 percent, the report added.

AGRICULTURE

In the present state of global shocks, the agriculture and agro based industries have assumed a leading role in the national economy and it is rightfully being given all possible support by the government as well as the banking private and public sector banks to ensure optimum results.

The farming community on its part looks pretty prepared to grab its share from local as well as the export market reflected in an ambitious target of exporting of at least 4 million tons of rice this year.

Meanwhile, the agricultural credit disbursement by commercial and specialized banks rose 8.66 percent year-on-year to Rs 80.952 billion in the first five months (July-Nov) of the current fiscal year (FY10). In absolute terms, disbursement of credit to the agriculture sector increased by over Rs 6.448 billion in July-November 2009 when compared with total disbursement of Rs 74.504 billion in the same period last year.

Overall credit disbursement by five major commercial banks including Allied Bank Limited, Habib Bank Limited, MCB Bank Limited, National Bank of Pakistan, and United Bank Limited stood at Rs 44.936 billion in July-November 2009 compared with Rs 38.511 billion in July-November 2008, depicting an increase of Rs 6.425 billion or 16.68 per cent. Zarai Taraqiati Bank Limited, the largest specialized bank, disbursed a total of Rs 21.824 billion in July-Nov 2009, up 19.41 percent when compared with Rs 18.277 billion in the same period last year, while disbursement by Punjab Provincial Cooperative Bank Limited stood at Rs 865.607 million in July-Nov 2009 compared with Rs 1.058 billion in the same period last year. Besides, 14 domestic private banks also loaned a combined Rs 13.327 billion in July-Nov 2009 compared with Rs 16.658 billion disbursed in July-Nov 2008.

It may be recalled that the State Bank of Pakistan has set an indicative agricultural credit disbursement target of Rs 260 billion for FY10. Banks disbursed a total of Rs 233.01 billion to the agricultural sector in FY09.