KARACHI: Banks’ profits more than doubled to Rs284.5 billion in the first half of the current year from Rs126.2bn during the same period last year, according to a State Bank of Pakistan report on mid-year performance review of the banking sector (Jan-June 2023) released on Monday.

The major push to earnings came from higher net interest income, as the rising interest rates translated into higher earnings. The SBP policy rate rose by cumulative 600 basis points during H1CY23.

Banks’ net interest income (NII) grew by 67.3 per cent in H1CY23 compared to 23.6pc during the same period last year, as the policy rate was raised a number of times during the period under review while earning assets also posted a steady growth.

Though interest income doubled to Rs2723.1bn in H1CY23 as compared to the first half of the last year, interest expenses more than doubled to Rs1882.1bn, offsetting a significant part of the growth in interest income.

The banks’ major increase in income on advances and investments was due to a rise in interest rate while the expansion in volume of these assets also contributed to the growth in interest income.

Non-interest expenses recorded a noticeable increase of 31.9pc in H1CY23, which was higher than last year. According to the review, the banking sector managed to expand its asset base by 14pc during the period under review which was, however, largely augmented by investments as advances recorded a muted growth.

The asset base grew by 14pc in H1CY23 (16pc growth in H1CY22) to reach Rs40.796 trillion. This growth was mainly contributed by investments which constitute 52.7pc of asset base, while growth in advances remained subdued.

Advances to deposits ratio (ADR) declined to 45pc from 50.4pc in December 2022.

According to the report, banks’ investments increased by Rs3.1tr and advances by Rs241bn during H1CY23. “There was a marked slowdown in domestic private sector advances (PSA) during H1CY23 which contracted by 7pc against 6.8pc growth in the corresponding period last year,” it added.

Segment-wise details of private sector advances reveal that almost all segments retired loans during H1CY23. Corporate segment — holding 75pc of domestic private sector advances — made highest retirement of Rs534.6bn. “This substantial loans retirement was mainly driven by low demand for working capital loans and trade financing,” said the report.

Auto financing observed retirement of Rs44.9bn, driven by high interest rates. Sector-wise details of private sector advances reveal a broad based slowdown. Substantial retirements were made by financial sector (of Rs138.7bn), energy (Rs71.8bn), chemicals and pharmaceuticals (Rs75.2bn), textiles (Rs64.7bn) and individuals (Rs53.8bn). In line with the recent trend, investment portfolio of banks increased by 16.9pc to reach Rs21.5tr during H1CY23.

FX market: The rupee depreciated by 20.8pc in H1CY23 against the dollar compared to 13.8pc in H1CY22, while the exchange rate exhibited relatively higher volatility during H1CY23.

Deposits of the banking sector increased by 14.2pc to Rs26.785tr during H1CY23, showing a noticeable revival in mobilisation activity when compared with 1.1pc contraction in H2CY22 and 9.3pc growth in H1CY22.

Published in Dawn, September 19th, 2023