Pakistan’s banking sector is resilient: SBP

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Pakistan’s banking sector is resilient: SBP

KARACHI: Governor, State Bank of Pakistan, Dr Shamshad Akhtar has said that Pakistan’s banking sector is quite resilient and has been and will be able to withstand market shocks and adverse macro economic conditions.

This capability has been achieved through continuous financial reform process distinctively pursued during the past few years. There should not be any cause for concern about the stability of the banking system in the coming days, she said in a statement issued to the press on Tuesday evening.

She pointed out that the investors maintained their confidence in the banking system and have injected additional capital of around $500 million since 2006 which, coupled with retained earnings, improved the capital base of the banks. Dr Akhtar said that the banking sector’s capital adequacy was well above the minimum requirement. The capital adequacy ratio of the system is 12.1 percent as of June 2008, which is well above the international benchmark. The non-performing loans ratio and the ratio of non-performing loans to capital are also quite low and within acceptable ranges, she said.

“The infection ratio (net) in June 2008 has improved to 1.1 percent from 1.6 percent in Dec-2006, signifying that the banks set aside more reserves out of their earnings to cover the increase in non-performing loans. Accordingly, the NPL coverage and capital impairment ratios have also improved,” the SBP Governor added.

She said that Pakistani banks largely focus on conventional lending and are not exposed to subprime credit instruments in the international market. The lending and investments of the banks are subject to stringent prudential regulations of SBP, which prohibit the banks from clean lending and investment in low quality assets. Further, the banks are required to recognize the loan losses and provide for these losses in line with the established best practices. State Bank of Pakistan through its on-site inspection and off-site supervision wings keeps a close watch on the state of each bank as well as the banking system in entirety for any risk to the stability of the banking system.

In 2007, SBP made loan provisioning requirements more stringent in order to create adequate cushions to withstand any potential credit adversity. Stress testing analysis of the system suggests that the system is capable of withstanding variety of plausible shocks in major risk factors without losing its solvency, Dr Akhtar added. staff report

http://www.dailytimes.com.pk/default.asp...2008_pg5_6

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http://geo.tv/10-7-2008