KARACHI: The banking sector maintained its growth momentum as not only its assets and deposits rose but the advances to the private sector also witnessed encouraging growth during the 12 months from September 2020 to September 2021.

During the 12-month period, the total assets of the banking sector rose 20.9 per cent to Rs28.790 trillion till September 2021 against Rs23.808tr in September 2020.

The Quarterly Compendium: Statistics of the Banking System for July-September 2021 (Q3CY21), issued by the State Bank of Pakistan (SBP) on Tuesday, observed that the quarterly stress test results also revealed that the banking sector was likely to remain resilient even under reasonably severe economic shocks over a protracted period of time.

The data showed that the banking assets rose by 2.17pc during the period over the last quarter surpassing 0.44pc growth attained in the corresponding period of the last year.

This expansion has been particularly contributed by the domestic private sector advances, which increased by 3.8pc during Q3CY21 against a contraction of 0.5pc during the corresponding period of the last year. The net advance rose to Rs9.173tr in Sept 2021 compared to Rs7.887tr in Sept 2020 showing a growth of 16.3pc.

On the funding side, deposits increased by 0.36pc during the quarter as compared to 0.80pc growth in the same period last year. On a year-on-year basis deposits attained an encouraging growth of 16.9pc as it rose to Rs20.516tr in Sept 2021 against Rs17.543tr in Sept 2020.

The increase in advances remained broad-based reflecting a general recovery in the economic activity as well as the impact of higher input prices.

“The healthy growth in credit to the private sector is quite encouraging, as it will prop up the low credit incidence in Pakistan as measured by domestic private credit to GDP ratio,” said the SBP, adding that the SBP’s refinance schemes announced in the wake of Covid-19, particularly the Temporary Economic Refinance Facility (TERF), have been supporting the private sector credit growth in the last few quarters.

“However, the banks have increased the credit disbursements from their own sources during 3QCY21 and the trend continues,” said the SBP.

The SBP report said the construction and housing finance also emerged as notable sectors, which are witnessing a healthy increase in credit off-take. Importantly, the SBP assigned targets for housing finance to the banks in July 2020 and the Government of Pakistan Markup Subsidy Programme for Housing Finance (Mera Pakistan Mera Ghar Scheme (MPMG) announced in October 2020, played a key role in enhancing the overall credit to the housing sector.

“The banks are actively participating in these initiatives for increasing the mortgage finance that will help a greater portion of the population in construction and purchase of houses,” said the SBP.

The trends in key financial soundness indicators remained encouraging. The banking sector’s credit risk indicators improved further as the gross Non-Performing Loans (NPLs) ratio decreased to 8.8pc at end-September 2021 from 9.9pc a year ago. This improvement came on the back of a rise in loans and lower fresh delinquencies.

Due to an increase in provisioning against NPLs, the provisions coverage ratio improved to 88.9pc in Q3CY21 compared to 84.6pc a year earlier. Accordingly, the net NPLs ratio declined to 1.1pc in Q3CY21 from 1.7pc in Q3CY20, indicating lower residual risk to solvency from delinquent loans.

The earning indicators of the banking sector witnessed some moderation during Q3CY21 as the Return on Assets (ROA) stood at 0.95pc in Q3CY21 compared to 1.13pc in Q3CY20. The solvency of the sector remained strong as the Capital Adequacy Ratio (CAR) at 17.9pc stayed well above the minimum domestic regulatory benchmark of 11.5pc and the global standard of 10.5pc.

Published in Dawn, January 5th, 2022