Banks assets grew by 6pc in 2QCY09: SBP

[LahoreEstate]

KARACHI - The asset base of the banking system grew by 6.0 percent to Rs6,087 billion during the second quarter (April-June) of current calendar year 2009.
However, banks’ deposits registered a growth of 8.2 percent and stood at Rs345 billion in April-June 2009 as against of Rs4,563 billion during the same quarter of last calendar year.
According to State Bank of Pakistan’s Quarterly Performance Review of the Banking System for the quarter ended June 2009, the growth in advances and investment remained at 5.0 percent and 8.5 percent, respectively.
Nonetheless, their constituents witnessed diverging trends as lending to public sector for commodity operations and PSEs witnessed a strong growth while lending to private sector further came off during the quarter. Similarly, increase in investments was largely contributed by investments in government papers.
Report projects that economic slowdown and domestic security issues are likely to dampen the growth of the banking system. Low demand for banks’ credit from private sector, increased risk aversion on the part of banks and public sector demand for bank credit will further shift asset mix away from advances to government papers and lending to PSEs.
Given the slackened economic activities and constrained repayment capacity of borrowers, credit risk continues to remain the foremost concern for the system. However, stress test results indicate that banks are well placed to withstand any unusual shocks in credit risk factors. Banks have though shown strong performance in attracting deposits during the quarter under review, report said.
Report further said that due to risk aversion of banks and slackened demand from private sector, lending to private sector shed by 1.8 percent. Further, banks’ investments in Government papers also significantly grew by 12.9 percent during the quarter under review. Accordingly, asset mix further shifted from loans and advances to investments in government papers.

Moreover, the subordinated debt and net worth grew by 5.2 percent and 4.7 percent, respectively during June 09. Net assets of the banking system grew largely on account of revaluation surplus, complemented by modest rise in retained earnings and paid up capital.
Since the growth in equity was slightly slower than growth in asset base, share of net-worth in assets base declined marginally to 10.2 percent in Jun-09 from 10.3 percent at the end of proceeding quarter.
In line with the different growth rates in major asset components i.e. advances and investments, the asset composition of the banking system changed during the quarter under review. Specifically, the share of advances (net) in total assets marginally declined to 52.2 percent in Jun-09 from 52.6 percent in Mar-08. On the other hand, the share of investment (net) increased by 53 basis points to 23.1 percent at the cost of share of advances, cash and bank balances, report added.
Banking system witnessed some let up in the impacts of macroeconomic pressures that have been affecting its asset quality and growth for last few quarters, though overall macroeconomic outlook with slight improvements remained stressful. IMF’s latest estimates predict that world Gross Domestic Product (GDP) would decline by 1.0 percent in 2009 followed by a modest 3.0 percent growth in 2010. Pakistan’s economy also grew by 2.0 percent during FY09 - the lowest for current decade - while the projection of 3.3 percent for FY10 also remains low, report mentioned.
According to the report, NPLs grew by 4.9 percent over the quarter and infection ratio stayed at 11.5 percent. However, due to increased loan loss provisions, net infection ratio decreased to 3.7 percent in June 2009 (3.9 percent in Mar 09) and provisions covered 70 percent of the NPLs. The higher loan loss provisioning during the quarter nonetheless affected the earnings. Pre-tax Return on Assets of 1.7 percent though lower than the levels of corresponding periods of last couple of years, was higher than the entire year results of CY08, the report added.
“The banking system continued to show the resilience against major risk factors, though the heightened credit risk remained a major source of concern for banks,” says the Review Report released today. It said the growth in non-performing loans (NPLs) pacified and deposit after showing some stagnancy witnessed strong growth of 8.2 percent during the quarter.
Banks posted pre-tax profit of Rs 28.6 billion during the first six months of the year 2009 while risk-based capital adequacy ratio (CAR) for banks improved to 13.5 percent in April-June 2009(12.9 percent in Jan-Mar, 2009).
“This improvement in CAR was caused by growth in equity as well as reduction in Risk Weighted Assets as the banks shifted their asset mix from private sector credit to less riskier lending to public sector and government papers,” the report pointed out.
Major stress from weakened economic conditions i.e. flow of additional non-performing NPLs coverage after deteriorating over the last few quarters improved to 70.2 percent.
The significant increase in loans loss provisioning moderated the earnings of the system: year to date Profit before Tax (PBT) of Rs47.8 billion in Jun-09 as compared to Rs61.4 billion for corresponding period of CY08. The baseline indicators of Return on Asset (ROA) and Return on Equity (ROE) remained significantly lower than the level for corresponding period of last year, though still higher than entire year results of CY08, report said.

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