State Bank of Pakistan has released January-March 2016 quarterly performance review of commercial banks, highlighting that the asset base of the sector has registered a paltry growth of one percent. The banking sector growth was also reflected by absorption of new human resources and expansion in banking infrastructure including ATMs and branches.

It may be ironical that this dismal growth was mainly contributed by banks’ investment in government securities (mostly Pakistan Investment Bonds) as overall advances experienced seasonal decline owing to net retirements against commodity financing and Small and Medium Enterprises (SMEs) financing.

However, the seasonal contraction in gross advances (0.6 percent) was lesser than the average decline of 1.2 percent during the same quarter of last two years due to positive growth in advances to the private sector by one percent, mainly in fixed investment advances.

The deposits – sensitive to seasonal fall in overall advances, declined by 0.6 percent during the period under review with a dip in current deposits and fixed deposits, however, saving deposits increased by 3.6 percent. Consequently, the borrowings from financial institutions (mostly SBP) provided the funding necessary for asset expansion.

Asset quality slightly deteriorated as NPLs to Loan ratio increased by 32 bps to 11.7 percent and Net NPLs to Net Loan ratio inched up by 23 bps to 2.1 percent. Banks’ growing share in government securities further improved the fund based liquidity; though, some volatility was seen in market liquidity.

With YoY growth of 2.1 percent, the quarter observed profit after tax of Rs52.9 billion. However, due to a slowdown in the pace of profits, Net Interest Margin (NIM) narrowed down to 3.9 percent from 4.4 percent and ROA to 2.3 percent from 2.6 percent.

Solvency observed downward adjustment to 16.3 percent, still well above the minimum local required threshold of 10.25 percent and international benchmark of 8.625 percent, primarily due to one-off accounting adjustment by a public sector bank, continued growth in private sector advances and dividend payments by profitable banks.

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