Documente Academic
Documente Profesional
Documente Cultură
The asset base of the banking system posted a strong growth that was parallel to the levels at the mid of the outgoing decade a period marked with high economic growth and absence of other structural shortcomings. Deposits of the system, after remaining lacklustre during the first three quarters of CY09, posted heartening growth. On the asset side, lending portfolio also increased, however the distinguishing phenomenon was the pick-up in lending to domestic private sector that had gradually declined during the preceding three quarters. Moreover, unlike the previous quarters skewed growth in power sector, the growth was widely shared by different leading sectors of the economy. Growth in NPLs substantially decelerated during the quarter under review; 2.5 percent quarterly growth to Rs 432 billion. The NPLs of the system had been showing consistent and fast increase for the last one-and-a-half-year or so and had almost doubled since CY07. The increase mainly occurred in loss category that requires full provisioning coverage, and banks set aside relatively higher amount of provisions. Accordingly the provisioning coverage improved over the quarter and impairment ratio (net NPLs to equity) came down, while increase in lending portfolio further contributed towards the decline in infection ratios. The slowdown in loan infection rate preserved the banks earnings from significant dent, which has been the hallmark of the last few quarters. Though more than proportionate growth in the net markup and non mark-up incomes augmented earnings, faster accumulation of operating expenses moderated the Return on Assets. The indicator, with slight contraction, remained almost stable at the last quarters level but significantly higher than last years results. Accumulation of year to date profits, equity injections and growth in revaluation surpluses has significantly raised the equity base of the system. Pick-up in lending to private sector led to substantial increase in risk-weighted assets. Accordingly, risk based Capital Adequacy Ratio of the system also slightly came off, though in comfortable range at 14.1 percent.
Forex pk
Tuesday, 08 June 2010 11:19
Credit risk, infected loans major challenges: SBP s quarterly performance review of banking system
KARACHI : The State Bank of Pakistan on Monday said that challenging economic environment, power shortages and security situation have increased the risk, and heightened credit risk and rising portfolio of infected loans remain major challenges for the banking system.
According to State Bank of Pakistan s Quarterly Performance Review of the Banking System, the fundamental factors for high credit risk including general slackened economic environment experienced slight improvements on few fronts, and the overall economic conditions, security environment and power supply situation remained fragile.However, the report said, the results of stress tests for stressed scenarios indicated the system s strong capacity to withstand extraordinary shocks in major risk factors, and prevent the emergence of any systemic risk from any such event.The Report said that equity base of the banking system remained almost at last quarter s level. However, due to increase in risk-weighted assets and decrease in eligible capital because of regulatory deductions, the risk-based Capital Adequacy Ratio (CAR) of the system lowered to 13.7 percent (14.1 percent in December-09), which is well above the minimum regulatory standard of 10 percent. The stress test results showed that capital base of the system is strong enough to withstand unusual shocks in major risk factors, the Report reiterated.According to the report a challenging economic and business environment continues to affect the growth and asset quality of the banking system and after experiencing some let-up during the last quarter, the rate of inflow of fresh nonperforming loans (NPLs) slightly picked up during the first quarter of current calendar year. The Report said that non-performing loans of the banking system increased to Rs 457 billion in January-March 2010 quarter from Rs 432 billion in December 2009. Accordingly, net NPLs to loans ratio inched up to 4.2 percent, while provisioning coverage with slight contraction remained stable at 70.9 percent.Deposits of the banking system, after experiencing a strong growth during last quarter, with slight decline, remained almost stable, while the baseline indicators of solvency slightly deteriorated due to increase in credit risk charge and market risk charge.The report noted that high level of commodity finance was burdening the liquidity profile of the system and limiting its ability to lend to private sector. Incidentally, the reduction in public sector financing due to contraction of commodity finance during March 2010 came just before the inception of wheat harvest.During the January-March 2010 quarter, earnings of the banking system registered improvements, the Report said, and added that the system posted an aggregate pre-tax profit of Rs 29.1 billion (Rs 26.2 billion in January-March 2009 quarter) with return on assets (ROA) of 1.8 percent (1.5 percent for CY-09). Moreover, contrary to the recent trend ie concentration of earning in relatively large-sized banks, this quarter also witnessed improvement in the earnings of individual banks as the number of loss making banks came down, the Report added. On the funding side, the deposit base of the system with slight contraction remained stable, while 1.9 percent growth in investments could not sustain the asset base, which declined by 1.4 percent, it said. Commercial banks lending to public sector during the January-March quarter of 2009-10 fiscal year (FY10) contracted substantially by 10.7 percent, while lending to the private sector increased by 0.2 percent on top of a 4.16 percent rise in the previous quarter. As a result, overall lending portfolio of the banking system declined by 2.4 percent. The NPLs of the system showed consistent increase since middle of CY08 and their amounts more than doubled since CY07. The growth in NPLs picked up slightly during the quarter by 5.8 percent QoQ growth to Rs 457 billion. The increase in NPLs mainly occurred in loss category with equivalent increase in partial provisions category, which increased provisioning requirements. However, the report said, given the benefit of liquid collaterals and forced sale value (FSV) of pledged and mortgaged collaterals held against the NPLs, banks set aside relatively lower amount of provisions. The report said that in the future the borrowing needs of the government for budgetary support as well as that of public sector enterprises (PSEs) will keep an upward pressure on banks investments in government papers, though the rate of growth is likely to remain low. The aggregate earnings of the system are likely to remain largely immune from heightened risk.