Despite pandemic the profits of the banking sector surged by 42.92 per cent in calendar year 2020, the State Bank of Pakistan (SBP) said on Wednesday.
According to a report by Dawn that analysed the SBP’s Financial Stability Review CY20, a drastic cut in policy rate during March to June 2020 transmitted into lower funding costs on deposits due to immediate re-pricing of saving deposits.
On the other hand, interest earnings were supported by increase in the volume of investments in government securities.
Banks investments shot up by 33.51pc to Rs12 trillion during CY20 (12.96pc rise in CY19) predominantly driven by investments in government securities. Weak financing demand, abundant liquidity, and high government budgetary borrowing needs accelerated banks’ investments.
“Despite pandemic driven stress, banking sector’s assets grew by 14.24pc during CY20—higher than 11.73pc growth observed in the previous year,” said the report.
The report says that the performance of Islamic banking institutions (IBIs) was notable as their asset base expanded by 30pc during CY20 due to decent growth in financing and a surge in investments.
More than 50pc rise in NPLs during CY20 was observed in agribusiness, energy, and sugar sectors. The flow of NPLs in the agribusiness amounted to Rs17bn against Rs6bn in CY19.
The SBP provided a comparative study of global financial crisis (GFC) of 2008-09 and ongoing impact of Covid-19. The global output loss was 0.6pc in 2008-09 while Covid related estimated global output loss is 3.3pc.
Govt/ SBP needs to push the banks to increase avg industry ADR to 75% – 80%. Presently the banking industry is either following MCB model of parking most of the deposit in govt securities/ bonds or focusing on financing to private sector, mainly 50 or so large corporate houses, against higher yielding SBP schemes such as TERF, LTFF, etc.
Focus on promoting cash flow based financing, instead of collateral, to the SME sector remains a pipe dream. Without penalizing the banks for low ADR and also setting target for xxx% of ADR to be driven from SME financing, overall economic growth & mass job creation can never materialize.