SBP says Pakistani banking sector’s performance 'satisfactory' in mid-year review

KARACHI: The State Bank of Pakistan (SBP) said Wednesday the performance and resilience of the country's banking sector was "satisfactory" for the period January to June 2020 (H1CY20).

In its Mid-Year Performance Review (MPR), the SBP said that the banking sector's assets grew 7.8% "despite elevated economic stress driven by the COVID-19 pandemic", primarily due to the robust increase in investments, funded by a surge in deposits.

While advances "observed mild downtick owing to the economic slackness caused by the disruption in the business activities after the outbreak", the decrease could have been more significant if not for the Pakistan central bank's supportive measures.

The State Bank of Pakistan's measures pertaining to the coronavirus pandemic, introduced early in the first half of 2020, "facilitated the banking sector in conserving the capital, enhancing the lending capacity and increasing the loss absorption ability".

"As a result, despite some increase in credit risk, banking sector demonstrated improved profitability and enhanced resilience," the SBP said in a press release.

Non-performing loans (NPLs) ratio rose from 8.6%, as of the end of December 2019, to 9.7%, as of June 2020. Regardless, net NPLs-to-loan ratio — a better measure of credit risk — only bumped up marginally, from 1.7% to 1.9%.

A visible improvement was observed in the banking sector's earnings as profitability jumped a whopping 52% on a year-on-year (YoY) basis.

"This improvement resulted from higher interest income, deceleration in interest expenses and rise in non-interest income," the statement read. "With better profitability, the soundness of the banking sector further strengthened as Capital Adequacy Ratio (CAR) increased to 18.7% in June 2020 from 17% in December 2019."

The SBP said the Mid-Year Performance Review also included the results of the sixth wave of the SBP’s Systemic Risk Survey (SRS), conducted in July-August 2020 and represents the views of the market's participants.

"The survey results indicate that, at present and for the next six months, the respondents consider global risks and domestic macroeconomic risks to be important. Notably, the policy measures taken by SBP to mitigate the implications of COVID-19 have been very well received by the stakeholders," it added.