State Bank of Pakistan Reports Satisfactory Banking Sector Performance for H1CY24

The State Bank of Pakistan (SBP) released its Mid-Year Performance Review for the banking sector on Wednesday, indicating a positive trajectory for the first half of 2024. The review highlights an 11.5% year-on-year growth in the sector’s collective balance sheet, reaching Rs51,687 billion.

Key points from the review include:

– **Balance Sheet Growth:** The banking sector’s balance sheet grew by 11.5% in H1CY24, driven largely by investments in government securities and sustained demand for bank credit. This growth, however, was slower compared to the 14% increase recorded in the same period the previous year.

– **Asset Quality:** The sector’s asset quality remains stable with gross non-performing loans (NPLs) increasing only slightly. The provisioning coverage against NPLs improved to 105.3%, aided by the implementation of IFRS-9 which introduced general loan loss allowances for performing loans.

– **Sector Resilience:** Despite slower growth in public sector advances and a decline in private sector advances, the banking sector demonstrated resilience. The Capital Adequacy Ratio improved to 20%, surpassing the minimum regulatory requirement. However, profitability indicators such as Return on Assets (ROA) and Return on Equity (ROE) saw declines to 1.2% and 20.4%, respectively.

– **Funding and Deposits:** Deposits rose by 11.7% in H1CY24, driven primarily by increases in saving and current deposits. The sector’s reliance on borrowing remains high due to the need for additional funding to support asset growth.

– **Earnings and Profitability:** While sector earnings slowed due to reduced returns on advances and a smaller net interest margin, non-interest income, including fees and trading gains on government securities, supported overall profitability.

– **Financial Market Stability:** Domestic financial markets experienced lower stress compared to the same period last year. A stable FX market and reduced financial market volatility were noted, though the equity market saw increased volatility. The money market continued to function orderly with SBP’s monetary policy operations maintaining interest rates within the policy range.

– **Systemic Risk Survey:** The review also included findings from the Systemic Risk Survey (SRS), which identified key risks such as the energy crisis, commodity price volatility, and foreign exchange risk. Despite these concerns, there is confidence in the stability of the financial system and the effectiveness of regulatory oversight.

Overall, the SBP’s review underscores a satisfactory performance and resilience of the banking sector amidst various challenges, with the sector demonstrating sufficient capacity to handle adverse conditions.