Banking sector flourishes amid economic crisis in Pakistan: CEN

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Banking sector

BEIJING: The banking sector has topped among other businesses that thrived during the present times of economic crisis in Pakistan, China Economic Net (CEN) reports.

Banks continued to earn higher profits during testing times as reflected by the increasing spread of every bank – the difference between the interest rate which banks charge from the borrowers and the interest rate they pay to the depositors.

Higher spreads ensure higher profits to the banks. They are on a rise since the benchmark interest rate resumed its upward trajectory in January 2018.

The spreads increased 2.13 percentage points to 5.13 per cent in December 2019 compared to 3pc in December 2018, said Arif Habib Limited (AHL) while citing the latest data from the State Bank of Pakistan.

“The spreads would continue to rise in the months to come even if the central bank cuts the benchmark interest rate on Tuesday (January 28) when it is scheduled to issue a new monetary policy statement for the next two months,” AHL Deputy Head of Research Tahir Abbas told a news publication.

On average, the banks charged 13.84pc from the borrowers and paid 8.71pc to the depositors, resulting in a spread of 5.13pc in December 2019, he added.

“The spreads adjust in accordance with the prevailing benchmark interest rate, but with a lag of a few months from the time changes are made in the interest rate,” Abbas maintained.

The SBP’s monetary policy committee (MPC) may do anything, including leaving the interest rate unchanged at the prevailing eight-year high of 13.25pc next week. It may increase the rate to contain the continuously increasing inflation or slightly cut the rate to let the economic activities step up in the country.

According to Topline Securities, the profit of banks listed at the Pakistan Stock Exchange (PSX) surged 48pc to Rs45.5 billion in the third quarter of July-September of 2019 compared to what they earned in the same quarter of 2018.

Cumulatively in the nine months (January-September 2019), the profit grew 20pc to Rs127.7 billion, it added.

BMA Research Executive Director Saad Hashmi said the other day that there was only one sector – banks – which managed to thrive under the recent economic reforms as a majority of other sectors had been hit hard due to economic slowdown in the country.

“Profit of the entire banking sector is estimated to grow by a hefty 40pc in the calendar year 2020,” he said.

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