Home / Business / Bank earnings soar 53pc in Jan-June

Bank earnings soar 53pc in Jan-June

KARACHI: Despite some increase in credit risk, banking sector demonstrated improved profitability — showing a jump of 52 per cent in the first half of the current calendar year, the State Bank said on Wednesday.

In its Mid-Year Performance Review of the banking sector — which comprehensively covers the performance and soundness of the banking sector for the period January to June 2020 (H1CY20) — SBP noted that despite elevated economic stress driven by the Covid-19 pandemic, assets of the banking sector witnessed a decent expansion of 7.8pc during H1CY20.

Robust increase in investments, funded by surge in deposits explains this growth, said the report. However, the advances, on the contrary, observed mild downtick owing to the economic slackness caused by the disruption in the business activities after the outbreak.

The Non-Performing Loans (NPLs) ratio increased from 8.6pc as of end December 2019 to 9.7pc as of end June 2020. However, net NPLs to loans ratio, which is a better measure of credit risk, increased only marginally from 1.7pc to 1.9pc.

The reports said the earnings marked visible improvement as profitability jumped by 52pc on year-on year basis. “This improvement resulted from higher interest income, deceleration in interest expenses and rise in non-interest income,” the review said.

With better profitability, the soundness of the banking sector further strengthened as Capital Adequacy Ratio (CAR) increased to 18.7pc in June 2020 from 17pc in December 2019, said the report.

The contraction in advances during H1CY19 was a manifestation of economic stress prevailing due to Covid-19, said the report.

In case of Private Sector Advances (PSA), the contraction amounted to Rs150.1 billion (or 2.4pc). However, considering that SBP had taken timely policy measures to contain the risks associated with Covid-19, this contraction could have been much deeper otherwise, said the report.

The report said deterioration in macroeconomic environment was visible in both falling LSM activity and investors’ confidence.

Consumer financing observed contraction of Rs16.8bn during the first half of CY20. All three categories of consumer financing i.e. auto loans, credit cards and mortgages observed retirements, said the report.

In terms of sectors, though there was contraction in demand, yet flow of advances to textile, cement, and sugar sectors increased. Textile sector retired loans during Q2CY20, which translated into a marginal increase of 1.3pc over the H1CY20, said the report.

Energy sector’s cash flows improved during the first half of CY20 owing to the issuance of energy Sukuk-II worth Rs200bn, which reduced the receivable of energy firms (related to circular debt).

Investments of the banking sector — amid weaker demand for advances and abundant liquidity — surged by Rs2 trillion during the first half of CY20. Investments in government securities explain more than 90pc (Rs1.9tr) rise in investment flows during the reviewed period.

Deposits surged by 9.1pc during H1CY20 (6.8pc in H1CY19). It was the highest acceleration since H1CY0715, said the report.

The compositional analysis indicates that Savings and Current Account (Non-Remunerative) deposits together explain 90pc rise in total deposits during H1CY20.

Check Also

PSX reaches new high, crosses 67,000 milestone

Bulls continued their stampede at the Pakistan Stock Exchange (PSX) on Thursday as shares gained …