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Tag: SBP

  • Consumer financing loses pace on housing, car loan shocks

    Consumer financing loses pace on housing, car loan shocks

    KARACHI: The consumer financing has lost pace in fiscal year 2018/2019 to total loans of Rs57.3 billion as compared with Rs86.5 billion in preceding fiscal year. The major drag came from auto and house financing segments, State Bank of Pakistan (SBP) said in its annual report on Pakistan Economy 2018/2019.

    The SBP issued the report a day earlier, stating that the auto and housing financing suffered due to the government’s ban on non-filers from purchasing/ registering assets such as cars and residential properties (above Rs 5 million), several price hikes of cars, and rising interest rates.

    The anticipation of new product launches and phasing out one popular model also played their part, as some customers may have adopted a wait-and-see approach.

    The SBP data shows that the car financing fell to Rs22.2 billion in fiscal year 2018/2019 as compared with Rs43.3 billion in preceding fiscal year. Similarly, housing loans fell to Rs10.4 billion in 2018/2019 as compared with Rs22.3 billion in the preceding fiscal year.

    The SBP said that since interest rates were on an upward trajectory, the substantial increase in installment amount compelled borrowers to either opt for high equity participation ratio or avoid bank financing altogether.

    Apart from these factors, the popularity of ride hailing services, which itself was an early contributing factor to the rise in auto financing, also seemed to have reached its saturation level, thereby negatively contributing to the growth in advances.

    The SBP said that in terms of outstanding portfolio, Islamic banks were able to keep their share intact at around 46 percent as of June 2019. However, in flow terms, the increase stemmed mainly from conventional banks where medium-sized players dominated.

    Nonetheless, the ban on non-filers on purchasing property (above Rs. 5.0 million) kept this segment suppressed during the year. As per industry sources, the increased price levels also eroded the capacity of many households to afford residential units in close vicinity of urban centers.

    Moreover, as per anecdotal evidence, consistent interest rate hikes during the year significantly raised the installment amount for potential borrowers, many of whom stand disqualified due to the breach of the maximum required debt-burden ratio.

    Compared to other segments, personal loans and consumer durables performed better. The flow of FY19 for consumer durables was historically highest, but price impact mainly explained this phenomenon, as there was more than double-digit inflation in consumer durables during the year.

    The argument also gets support from the fact that while banks received around 20 percent lower applications, the average loan size of accepted applications more than doubled to Rs 2.8 million in FY19 from Rs 1.2 million last year.

  • Opposition to CNIC condition because of misjudgment

    Opposition to CNIC condition because of misjudgment

    KARACHI: State Bank of Pakistan (SBP) on Monday said opposition from traders against CNIC condition on sales transactions was because of misunderstanding.

    In its annual report on State of Pakistan Economy, the SBP said that as part of the Finance Bill 2019, the federal government proposed an amendment in the Sales Tax Act of 1990.

    Initially, the registered persons were required to issue a serially numbered tax invoice at the time of the sale of goods. The invoices had to include the name, address and registration number of the supplier and recipient of the goods; the date of issue of the invoice; the description and quantity of goods; value of the sales tax applied; and the price inclusive and exclusive of the GST.

    According to the amendment, which was to become effective from 1st August, 2019 (but was later delayed), the requirements were elaborated further and the registered persons were instructed to record NIC number or NTN of the recipients unregistered with FBR for sales tax in addition to the details being recorded of the registered recipients.

    A relaxation from this clause was granted for sales up to Rs 50,000, provided that the recipient is an ordinary customer (i.e. a person who is buying goods for his or her own consumption and not for the purpose of reselling).

    The amendment caused significant unrest in the market, with a majority of the businesses taking a stance against it. Protests were arranged by the associations across the country and the government was asked to abolish the CNIC restriction.

    However, much of the opposition against the reforms arose because of the misunderstanding about the announced measures.

    In this regard, the following points are important:

    — The CNIC/NTN condition only pertains to sales of businesses that are registered with FBR. Those firms which are working informally do not need to ask for CNIC details from their purchasers, as they do not file tax returns. However, if those firms procure raw material from a registered firm, then they would have to provide the requisite CNIC details to the supplier.

    — The buyer does not have to be a registered person. Registered firms can continue to transact with unregistered buyers; the only addition is that they would have to document the CNIC of the buyer in question.

    — Sellers only have to record the NTN/CNIC number on the invoice; physical copies of the identity cards are not required. According to news reports, some businesses were fearing that they would have to keep photocopies of the recipients’ CNIC for record purposes, stating that such a measure would unjustly increase their operating and storage costs. However, no such provision has been proposed in the Finance Act.

    — No action will be taken against the business if the CNIC/NTN details are found to be incorrect upon subsequent inspection. The following provision is to be made part of the Sales Tax Act upon its revision: “Provided also that if it is subsequently proved that CNIC provided by the purchaser was not correct, liability of tax or penalty shall not arise against the seller, in case of sale made in good faith.” It was later clarified that no action would be undertaken without the approval of the Chief Commissioner of the respective jurisdiction. Lastly, even if action against the seller is warranted, it would be taken only after necessary action has been taken against the person who provided the non-genuine CNIC. A further clarification released by FBR explained that the NIC/NTN of the buyer with respect to taxable supplies to an unregistered person shall be deemed to have been reported in good faith provided that:

    (i) The tax invoice complies with the requirements ofsection 23(b) of the Act;

    (ii) Payment made by or on behalf of the unregistered purchaser of the amount of the tax invoice, inclusive of sales tax and applicable further tax, is deposited into the supplier’s declared business bank account;

    (iii) The NIC provided by the purchaser is found authenticated by NADRA; and

    (iv) The NIC/NTN provided is not of the employee of the seller or of his associates as defined under the Income Tax Ordinance, 2001.

    — The documentation clause would not result in the halt of purchasing by end-consumers. This is because ordinary buyers are exempted from such a condition, provided that the value of their purchases is up to Rs 50,000.

    — The amendment would not result in any price hike, given that no additional tax measures have been adopted under the Finance Bill 2019.

    — Sales tax filers feel that registered businesses have been unfairly tasked with the burden of identifying the nonfilers.

    According to FBR, if the documentation efforts are not expanded to identify those individuals that are not paying any taxes, then the tax burden on existing registered enterprises would continue to remain high.

    — The condition would not be enforced on small businesses in the cottage industry. According to the revised definition followed by FBR, a cottage industry player is one that: does not have an industrial gas or electricity connection; is located in a residential area; does not have a total labor force of more than ten workers; and has an annual turnover from all supplies not exceeding two million rupees.

    It is important to note that such structural reforms are unpopular in nature (and were thus delayed earlier) as these might increase businesses’ transaction costs, create liquidity issues, and affect overall economic activity in the short term.

    In particular, the introduction of the CNIC condition for sales tax purposes has faced serious resistance (including threats of lockdowns and protests) from traders across the country.

    The FBR has since then issued clarification circulars and engaged with the businesses on various forums to help clarify the matters and take feedback. Therefore, it is important to build capacity within the FBR and to further digitize its functions to streamline procedures.

    Moreover, the authority needs to continue the dialogue with relevant stakeholders for ensuring smooth implementation of policies, and alleviate regulatory and policy mistrust.

  • SBP emphasizes more efforts for taking Pakistan out of FATF grey list

    SBP emphasizes more efforts for taking Pakistan out of FATF grey list

    KARACHI: Dr. Reza Baqir, Governor State Bank of Pakistan (SBP) on Monday emphasized on putting more effort against money laundering and terrorist financing to ensure that Pakistan is out of grey list in the next meeting of FATF.

    While inaugurating the conference on Anti-Money Laundering (AML)/ Combating Financing of Terrorism (CFT) and Trade-Based Money Laundering (TBML), Dr. Reza Baqir, Governor State Bank stated that significant progress has been made between May and September 2019 to meet the action plan items set by Financial Action Task Force (FATF) in different areas to demonstrate effectiveness of AML safety regime of Pakistan.

    There was a major rethink of the approach being taken by the authorities in early to mid 2019. Consequently, a number of steps were taken to significantly strengthen our approach to making progress on these issues.

    He however, stressed for the need of putting more effort to make progress on remaining areas to ensure that Pakistan is out of grey list in the next meeting of FATF.

    He was speaking to the conference conducted by SBP and Asian Development Bank today at SBP, Karachi in a collaborative effort to mitigate the risks of money laundering and financing of terrorism.

    Speaking at the conference, the Governor informed the audience that since the grey-listing, State Bank has arranged many AML/CFT outreach and awareness programs for its regulated entities and stakeholders and that the conference is a useful platform to understand the AML/CFT challenges being faced globally and the best practices followed in mitigating such challenges.

    In the context of implementing AML/CFT requirements, the Governor urged the financial sector to make efficient use of technologies for assessment of risks, controls and ongoing monitoring of financial transactions and enhance capacity by continuous training of their employees.

    Dr. Baqir emphasized that trade based money laundering poses complex and sophisticated challenges and that SBP inspection teams conducted thematic inspections of banks with respect to export and import of specific goods.

    He also referred to State Bank’s framework for managing risks of trade based money laundering and terrorist financing which has been issued to encourage authorized dealers (banks) to effectively manage the trade based money laundering and terrorist financing risks.

    Ms. Xiohang Yang, Country Director ADB, and Mr. Mohsin Ali Nathani, President & CEO HABIBMETRO Bank also spoke on the occasion. Ms. Yang stated that ‘AML/CFT is a critical issue for trade finance, which is why ADB’s Trade Finance Program is playing an increasing role in this space. She stated that ADB has a strong commitment to work with Pakistan’s banking sector and the SBP on this issue.

    Ms. Yang further stated that the FATF has identified enhanced capacity building/training in AML/CFT as an immediate priority requirement and they are pleased to partner with the SBP and thankful to HABIBMETRO Bank for organizing the same.

    Mohsin Ali Nathani, President & CEO HABIBMETRO Bank while addressing the conference added, ‘Enhancement of AML & CFT efforts through increased awareness and strengthened systems, controls and processes is imperative for our country and the banking sector. HABIBMETRO Bank is pleased to organize this conference and bring together relevant stakeholders from the region, regulator and banking sector to re-affirm our collective commitment to mitigating the risks of Money Laundering and Terrorism Financing.’

    During the conference several prominent speakers and panelists discussed the requisites and obligations with regard to AML and CFT, including Terrorism Financing Risk Assessments, Transnational Risks in Trade Based Money Laundering (TBML), risks posed by DNFBPs & NPOs and Ultimate Beneficial Ownership.

    The conference also included a detailed discussion on the impact of Trade Based Money Laundering and the repercussions of the same for the banking sector especially in the context of grey listing.

    The conference was organized by HABIBMETRO Bank and attended by the Deputy Governor State Bank of Pakistan, Country Head Asian Development Bank and international experts in the field of AML/ CFT and trade from the United States, Australia and UAE.

    Participants included CEOs and senior management of Banks, DFIs, Microfinance Banks and Exchange Companies and representatives from the SBP, Financial Monitoring Unit (FMU) and Securities & Exchange Commission of Pakistan (SECP).

  • SBP forecasts subdued growth with high inflation

    SBP forecasts subdued growth with high inflation

    KARACHI: State Bank of Pakistan (SBP) on Monday forecast subdued GDP growth with high inflation for the current fiscal year.

    The central bank in its Annual Report 2018/2019 (State of the Economy), said that macroeconomic stabilization will continue to be the cornerstone of economic policies during 2019/2020.

    Real GDP growth is likely to remain subdued, though the early signs of recovery are already visible. Development spending may play a pivotal role, since there has been an observed tendency that Pakistan’s GDP growth and PSDP spending move in the same direction, and similar has been the case in 2018/2019.

    On this note, it is worth highlighting that the government has budgeted a greater outlay for PSDP during the year compared to the actual spending in FY19.

    Other triggers may include an improvement in market sentiments vis-à-vis the IMF program. A better showing by the agriculture sector compared to last year, and further improvement in the current account balance, may also improve the final outcome, the SBP said.

    Inflation, meanwhile, is expected to exceed its annual projection by the Planning Commission of Pakistan for FY20.

    While demand pressures have generally subsided, cost-related impact may be more pronounced in the first half of the fiscal year, taking the cue from oneoff adjustment in prices of utilities and other FY20 budget-related measures.

    By the second half, further supported by the end of deficit monetization by the government, price pressures may begin to recede, setting the tone for considerably lower inflation in FY21. However, crossborder tensions (which have flared up intermittently since Q3-FY19 and worsened during Q1-FY20) represent an upside risk to this outlook, given their tendency to drive up food inflation.

    At the same time, the global slowdown may pose a downside risk to the outlook, especially if international oil prices fall more sharply than anticipated.

    The external sector’s outlook is positive on the whole, albeit being subject to both upside and downside risks. The current account deficit, after shrinking on YoY basis during FY19, is anticipated to subside further in FY20.

    Exports are projected to pick up during the year, conditional on demand conditions among the country’s major trading partners and buoyancy in commodity markets.

    In particular, onset of fiscal stimulus and successful resolution of trade negotiations involving major economies would be instrumental in supporting global consumer demand, which would in turn bode well for exporting partners, including Pakistan, along with improved prospects of foreign investments.

    The FTA-II with China and preferential trade agreement with Indonesia may also give a boost to exports. Decline in imports would be instrumental in improving the current account as the policy induced import compression would continue on top of subdued prices, barring any adverse shock from international oil prices.

    Moreover, workers’ remittances are expected to remain robust in FY20 on the back of measures taken and incentives given to overseas Pakistanis remitting under the Pakistan Remittance Initiative (PRI).

    The outlook for the fiscal sector, by contrast, is not straightforward. The FY20 budget looks to fix the deficiencies of the tax system and represents an earnest effort to increase documentation.

    It envisages a sizeable reduction in the deficit, by enhancing revenues and squeezing expenditures. However, achieving the ambitious tax collection target in the middle of a broader economic slowdown may present a challenge.

    Moreover, even if things pan out more or less according to plan, the fiscal deficit may be in the neighborhood of 7 percent nevertheless, implying that there would still be some way to go before fiscal consolidation is achieved. That said, the government is expected to make a concerted effort to meet the IMF’s quarterly targets, implying a measure of fiscal discipline.

    On an optimistic note, the private sector would be mindful that even as the economy rebalances and there is reduced demand in some sectors, new opportunities are simultaneously opening up in other areas.

    For example, imports of many consumer items and finished goods are shrinking due to a combination of regulatory duties and exchange rate depreciation. This generates an opportunity for domestic companies to step in and fill in this demand in the short to medium term.

    Moreover, alignment of the exchange rate represents improved prospects for export-oriented enterprises. The government’s stated commitment to foster the ease of doing business and pursue investor-friendly policies is also welcome.

    Meanwhile, domestic investors should also be looking to tap underserved markets and segments. Beyond provision of traditional goods and services, innovation must be the new watchword.

    It is especially encouraging to see that proactive, technology-driven domestic startups have already ushered in a positive disruption in industries ranging from banking (fintechs) to transportation (ride hailing apps) and consumer goods and food (delivery apps), to name just a few. Such examples may inspire those investors who have been sitting on the fence for some time now to abandon the wait and-see mode, and take positions sooner rather than later.

    In the grand scheme of things, a collective shift in sentiment and more optimism could prove to be a much needed catalyst for the revival of economic activities.

  • SBP issues common red flag indicators for trade based money laundering

    SBP issues common red flag indicators for trade based money laundering

    KARACHI: State Bank of Pakistan (SBP) has issued common red flag indicators for banks to take care in avoiding trade based money laundering and terrorist financing.

    Following are the common Red Flag indicators:

    i. Obvious over or under/over pricing of goods (significant discrepancies appear between the value of the goods reported on the invoice/EIF/MIF, EFE/MFE, Advance Payment Voucher and the known fair market value of the goods).

    ii. The description of goods on the Goods Declaration Form/Transport documents significantly varies from the description declared on EIF/MIF, EFE/MEF or underlying contract.

    iii. Significant variation is found between the description of the goods on the bill of lading and the invoice.

    iv. There are indications that the description of the goods is disguised.

    v. The tenor of the transaction does not commensurate with the nature of the underlying goods – for example perishable goods are traded on terms involving lengthy usance period.

    vi. Documents such as a letter of credit is received through unverified channels such as unauthenticated SWIFT message.

    vii. The type of goods being shipped appears to be inconsistent with the exporter’s or importer’s regular business activities.

    viii. The size of the shipment does not commensurate with the size of the exporter’s or importer’s regular business activities.

    ix. The packaging of goods is inconsistent with the commodity or shipping method.

    x. The goods are transshipped through one or more countries/jurisdictions for no apparent economic or logistical reason.

    xi. The country from which goods are being shipped is designated as “high risk” for money laundering activities.

    xii. The transaction involves the receipt of payments from third parties that have no apparent connection with the transaction.

    xiii. The method of payment apparently does not commensurate with the risk characteristics of the transaction e.g. the remittance of funds in advance payment for a shipment from a new supplier in a high-risk country.

    xiv. The transactions involving consecutive trade discount offered by exporters to the same importer.

    xv. The transaction involves repeatedly amended or frequently extended letters of credit.

    xvi. An exporter receives advance payment(s) but does not make shipment(s) there against.

    xvii. An Importer remits advance payment(s) but does not receive shipment(s) there against.

    xviii. The transaction appears to involve use of front or shell companies for the purpose of hiding the true parties involved.

    xix. The transaction involves import/export of dual use goods.

    xx. The item ordered is incompatible with the technical level of the country to which it is being shipped, such as semiconductor manufacturing equipment being shipped to a country that has no electronics industry.

    xxi. Where important details are missing on commercial invoice(s) or mentioned vaguely.

    xxii. Where some of the shipping documents are provided in photocopies instead of original against the regularity instructions or against normal business scenarios.

    xxiii. Where goods declarations in commercial invoice(s) are not proper, incomplete or otherwise not mentioned at all to conceal the facts.

    xxiv. Receipt of proceeds from non-cooperative countries as per FATF list against the shipment made to a third country.

    xxv. Where export proceeds are received from unrelated/third party with differing nature of business from that of exporter.

  • Banks disburse Rs26.76 billion business loans to youth

    Banks disburse Rs26.76 billion business loans to youth

    KARACHI: Banks have disbursed an amount of Rs26.76 billion under Prime Minister’s Youth Business Loans (PMYBL) till June 30, 2019 as against the amount of Rs25.13 billion disbursed till June 30, 2019.

    The number of borrowers has been increased to 26,679 by end June 2019 as compared with 25,128 borrowers by end June 2018, State Bank of Pakistan (SBP) said on Friday.

    The government, being cognizant of the important role played by youth and small businesses in the economic development, introduced Prime Minister’s Youth Business Loans (PMYBL) Scheme in 2013 with the aim of providing youth the opportunities of financial independence through self-employment.

    Under the Scheme, small businesses are provided loans up to Rs 2,000,000/- at a service charge of 6 percent p.a.

    Total number of applications received by the Executing Agencies (EAs) under PMYBL Scheme as of June 30, 2019 stood at 101,938. Of the total applications received so far under the scheme, 88 percent were from male applicants.

    Moreover, since launch of the scheme, number of sanctioned applications stood at 33,145 as on June 30, 2019, while cumulative disbursements of Rs 26,760 million had been made to 26,679 beneficiaries till June 30, 2019.

    The SBP said that small businesses have potential to revitalize economic activity by creating employment opportunities, reducing poverty and providing economic linkages and services to the corporate sector.

    The growth of small businesses and their access to formal finance is imperative for the development of economy.

    However, despite their strong potential, the small businesses, particularly of young entrepreneurs, have traditionally remained credit constrained due to high risk perception of banks towards them.

    The government introduced Prime Minister’s Youth Business Loans (PMYBL) Scheme in 2013 for providing the opportunities of financial independence to youth through self-employment.

    Under the scheme, unemployed youth are extended loans upto Rs 2,000,000/- at a service charge of 6 percent p.a. for setting up new business or strengthening existing business.

    The rate of return for lending banks is one year KIBOR+500 bps. Difference of banks’ rate and borrowers’ rate is being absorbed by the federal government in the form of subsidy.

    As a further incentive to the banks, GOP also shares 5 percent of credit losses of total outstanding loan portfolio of the banks under the scheme.

    Currently, eighteen banks are participating in the scheme, of which three are public sector banks (NBP, FWBL and Sindh Bank Limited) while the remaining fifteen are private sector banks.

  • Pakistan’s forex reserves increased by $149.7 million

    Pakistan’s forex reserves increased by $149.7 million

    KARACHI: The total liquid foreign exchange reserves have increased by $149.70 million to $15.142 billion by week ended October 11, 2016 as compared with $14.992 billion a week ago, State Bank of Pakistan (SBP) said on Thursday.

    The reserves held by the central bank increased $56.10 million to $7.813 billion by week ended October 11, 2019 as compared with $7.757 billion.

    The reserves held by other commercial banks increased by $93.6 million to $7.329 billion as compared with $7.235 billion a week ago.

  • SBP facilitates overseas Pakistanis in biometric verification

    SBP facilitates overseas Pakistanis in biometric verification

    KARACHI: State Bank of Pakistan (SBP) has facilitated overseas Pakistanis in their biometric verification for operating bank accounts.

    In a statement on Thursday, the SBP said that realizing difficulties being faced by overseas Pakistan in operating their bank accounts due to non-biometric verification of their accounts, State Bank of Pakistan has issued detailed instructions on the alternate arrangement to facilitate their biometric verification.

    It may be mentioned here that as per alternate arrangement, overseas Pakistanis may approach their respective banks through email/surface mail and provide identity documents like valid Passport, Visa, CNIC and NICOP (National Identity Card for Overseas Pakistanis) as an alternative arrangement for biometric verification for operating their bank accounts as usual.

    The arrangement has been made in line with State Bank’s continuous monitoring of the progress of the banking industry with respect to biometric verification; and it has been reiterated to banks for extending their fullest cooperation to their overseas customers.

  • SBP gives deadline to banks for IFRS-9 implementation

    SBP gives deadline to banks for IFRS-9 implementation

    KARACHI: State Bank of Pakistan (SBP) on Wednesday directed banks to implement International Financial Reporting Standard on Financial Instruments i.e. IFRS 9 from January 01, 2021.

    The International Accounting Standards Board (IASB) issued International Financial Reporting Standard on Financial Instruments i.e. IFRS 9 effective from January 1, 2018.

    IFRS 9 has introduced an expected credit loss approach, which bring major changes in the way the financial institutions (FIs) will assess the impairments of financial instruments.

    The banking industry has been representing to the State Bank of Pakistan(SBP) about the difficulties being faced in the implementation of this Standard and has been requesting to defer its implementation till December 31, 2020.

    Keeping in view of the importance of the Standard, the SBP advised the banking industry to carry out a quantitative impact assessment of IFRS 9 on their financials along with the assessment of their readiness of its implementation.

    In view of the impact assessment and stakeholders’ representation, it has been decided that the effective date of IFRS 9 implementation is January 1, 2021 for banks/DFIs/MFBs.

    Meanwhile, they are advised to ensure meticulous compliance of the following instructions:

    (a) Prepare separate pro forma Statement of Financial Position, Profit and Loss Account, Statement of Comprehensive Income and Statement of Changes in Equity based on the requirements of IFRS 9 along with the detailed notes on Advances, Investments, Provisions, Write offs and any other notes which may have material impact. The FIs are required to prepare aforesaid financials for the year-end 2019 and submit the same to BPRD-SBP within the time mentioned in the below table. These financial statements should also comply with the requirements stated in the Annexure-I of the Circular.

    (b) Perform parallel run of IFRS 9 implementation starting from Jan 1, 2020 to test the IFRS 9 outcomes. The FIs shall submit quarterly reports on the status of IFRS 9 implementation to the SBP, after review by the Board Committee responsible for oversight of the IFRS 9 implementation. Such reports should be submitted to the SBP within 14 working days of the Board of Directors (BOD) meeting at which the financial statements are approved.

    (c) Review internal systems and procedures and put in place required governance structures, processes and systems for implementation of the Standard before the effective date of IFRS 9 implementation.

    (d) The BOD of FIs are required to play an active role in the oversight of the implementation process of IFRS 9 either by establishing a separate subcommittee for this purpose or assigning the same to an existing subcommittee. The BOD are required to discuss the progress of IFRS 9 implementation in their periodic meetings. The specific responsibilities of the BOD for the implementation of IFRS 9 are mentioned in Annexure-II of the Circular.

    (e) Form a management level IFRS 9 Project Steering Committee, which will be responsible for managing the implementation process of IFRS 9, as mentioned in Annexure-II of the Circular. The Project Steering Committee should at least include the members from the Risk Management, Finance and IT departments.

    (f) The process of implementing IFRS 9 is required to be completed within the following time period:

    Sr#ParticularsTimeline
    1.Forming of a Board Committee and a Project Steering CommitteeJan 31, 2020
    2.Preparation of IFRS 9 compatible pro forma Financial Statements for year-ended 2019Apr 30, 2020
    3.Parallel Run of IFRS 9Periods beginning Jan 1, 2020
    4.Directors Review Reports for Parallel Run PeriodsWithin 14 working days from BOD meeting
    5.Effective Date of IFRS 9 implementationJan 1, 2021

    All banks/DFIs/MFBs are advised to ensure that the transition to IFRS 9 will be achieved in a planned manner and within the timeline stipulated above. Any violation of these instructions may attract punitive actions under the relevant provisions of the Banking Companies Ordinance 1962.

  • Asset quality of banking sector weakens on rising NPLs: SBP

    Asset quality of banking sector weakens on rising NPLs: SBP

    KARACHI: State Bank of Pakistan (SBP) on Monday said that the asset quality of banking sector weakened owing to Rs88.3 billion or 13 percent increase in Non-Performing Loans (NPLs).

    In its Mid-Year Performance Review of the Banking Sector (January – June 2019), the SBP said that the asset quality of the banking sector weakened during first half (January – June) 2019 H1CY19, breaking away from the declining trend in recent past.

    “The infection ratio (NPLs to Total Gross Loans) increased to 8.8 percent by the end of H1CY19 (8.0 percent by end H2CY18).”

    This was mainly due to an increase of Rs88.3 billion (or 13.0 percent) in NPLs during H1CY19.

    As a result, the NPLs stood at Rs768 billion by end June 2019. The fresh rise in domestic NPLs was mostly concentrated in few local private banks as well as in a specialized bank, the SBP said.

    Consequently, the infection ratio for local private banks and specialized banks increased to 7.0 percent (6.2 percent by end of H2CY18) and 43.2 percent (32.9 percent by end of H2CY18).

    With the tightening of macroeconomic conditions in CY18 and later, inflow of fresh NPLs have been on the rise.

    However, in terms of economic sectors, the higher defaults during H1CY19 were restricted to the energy and agribusiness sectors.

    Energy sector contributed 52.8 percent to the total increase in NPLs during H1CY19, while agribusiness contributed 18.6 percent. Most of the NPLs in the energy sector (96.8 percent) pertained to the public sector entities associated with electricity generation and transmission that faced constrained cash flows (due to circular debt/low recoveries).

    In case of Agribusiness, however, an element of seasonality exists in the classified loans as they peak around second quarter of each calendar year but then recede in subsequent quarters.

    Besides this seasonal phenomenon, other factors responsible for the rise in NPLs included late start of sugar crushing season, water shortage and drought conditions affecting crop yields, and delay in sale of the newly harvested kharif crops by farmers hindering their repayment capacity (Rice, Cotton and others) etc.

    Furthermore, 20.8 percent contribution to the growth in NPLs came from banks’ overseas operations, largely related to operations in the Middle East.

    In addition to Pak Rupee depreciation, the economic slowdown in some of these countries could be the reason for the higher NPLs.

    The surge in NPLs was mainly driven by the NPLs of public entities in the energy sector, which do not require provisions.

    Resultantly, the provision coverage ratio (78.4 percent in H1CY19 against 83.8 percent in H2CY18) declined.

    As a result, the net NPLs increased and net NPLs to capital ratio jumped to 11.5 percent as of end H1CY19 against 7.8 percent as of end H2CY18.

    However, it may be kept in perspective that in the aftermath of growing NPLs banks made net provisions to the tune of Rs26.40 billion during H1CY19 compared to Rs36.2 billion during CY18.

    The fund-based liquidity of the banking sector remained comfortable, despite continued moderation in liquidity ratios.

    Liquid assets to total assets ratio moderated to 48.0 percent by end June 2019 (48.7 percent by Dec- 18).

    Similarly, liquid assets to total deposits (excluding customer fixed deposits) also moderated to 81.8 percent in H1CY19 (85.0 percent in Dec-18) mainly due to higher proportionate rise in deposits.

    However, due to improved growth in fixed deposits, liquid assets to short term liabilities ratio improved to 95.6 percent (94.9 percent in Dec-18) percent over the comparable period of last year.

    Islamic Banking Institutions (IBIs) continued to augment the overall profitability of the banking sector as it contributed 26.5 percent to the overall after-tax profits during H1CY19, despite 14.4 percent share in total banking sector assets.

    The earnings ratios, which were on downtrend for last few years, improved during the half year under review Return on Equity after-tax inched up to 11.4 percent in Jun-19 from 10.7 percent in Dec- 18, while ROA improved to 0.84 percent from 0.81 percent The turnaround in profitability indicators, after three consecutive years of downturn, was primarily enabled by rising interest rates over the last year or so.