After tax earnings of banking sector surge by 43%: SBP

After tax earnings of banking sector surge by 43%: SBP

KARACHI: The State Bank of Pakistan (SBP) on Wednesday said that the after tax earnings of the banking sector surged by around 43 per cent in calendar year 2020.

The SBP in its financial stability review 2020, stated that drastic cut in policy rate during March to June 2020 transmitted into lower funding costs on deposits due to immediate re-pricing of saving deposits.

On the other hand, interest earnings were supported by increase in the volume of investments in government securities as well as lag in the re-pricing of loans, which are repriced as per the frequency set in the loan agreement between the bank and the borrower.

The solvency of the banking sector remained robust, which further improved with, marked rise in earnings.

The Capital Adequacy Ratio (CAR) increased to 18.56 percent by end December 2020 from 17.0 percent in December 2019.

Similarly, the Basel liquidity ratio including Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NFSR) remained well above the required level during CY20. Consolidated position of banks’ stability along key risk dimensions has improved over the year as encompassed in Banking System Stability Map (BSSM) despite the elevated macroeconomic stress.

Despite pandemic driven stress, banking sector’s assets grew by 14.24 percent during CY20—higher than 11.73 percent growth observed in the previous year.

Growth in the asset base was almost entirely driven by investments which increased by 33.51 percent. Marked rise in deposits—in a risk averse environment— enabled banks to finance investments of around Rs3 trillion.

Current accounts and saving deposits (CASA) contributed the lion’s share in the growth of deposits, which mainly belonged to ‘individuals’ and ‘businesses’ categories of deposits.

While advances recorded a paltry growth of 0.52 percent, this increase mainly resulted from SBP’s policies to support the flow of credit.

The credit decelerated across some economic sectors while made net retirements in others. Textile sector, however, availed highest financing during the reviewed year.

The credit risk of the banking sector, supported by SBP’s macro-prudential interventions, moderately increased as Gross Non-Performing Loans Ratio (GNPLR) inched up to 9.19 percent by end December 2020 (8.58 percent in Dec 2019).