Banking sector grows 11.5% in H1CY24 with satisfactory performance, resilience: SBP

KARACHI, Sep 18 :The State Bank of Pakistan (SBP), Wednesday, stated that performance and resilience of the banking sector for the period January to June 2024 remained satisfactory with a growth of 11.5 percent in collective balance sheet.
The central bank, in its Mid-Year Performance Review (the review) of the Banking Sector for H1CY24, highlighted that the collective balance sheet of the banking sector expanded by 11.5 percent year-on-year with its footing ticking at Rs51,687 billion in H1CY24 while total provisioning against non-performing loans improved to 105.3% during the period.
The expansion in the balance sheet footing of the sector in H1CY24 was mainly driven by investments in government securities as the government demand for bank credit remained high, the Review stated, while gross advances, both the domestic and global, posted a contained growth due to the net retirements by the private sector, although long-term financing to SMEs showed some revival.

However, it added that, the pace of expansion was lower in comparison to 14% growth in the corresponding period of last year, as the growth in public sector advances significantly decelerated during the reviewed period.
The decline in private sector advances, according to the review, was significantly lower as compared to H1CY23 while on funding side, deposits increased by 11.7% in H1CY24 with a major impetus from saving and current deposits. The higher pace of assets growth however necessitated additional funding, which kept banks’ reliance on borrowing intact, it added.
The Review noted that the asset quality profile of the sector remained satisfactory, as gross non-performing loans (NPLs) witnessed subdued increase while the total provisioning coverage against NPLs further improved to 105.3% by end June-2024, as with the application of IFRS-9, the banks also started to provide general loan loss allowances for performing loans.
Earnings of the sector slowed down owing to declaration in return on advances and contraction in net interest margin but non-interest income such as fee income and trading gains on government securities supported profitability.
The solvency position of the banking sector remained strong as Capital Adequacy Ratio improved to 20% (17.8 percent in June-2023) and was well above the minimum regulatory environment, the Review stated adding that the performance indicators such as Return on Asset (ROA) and Return on Equity (ROE) declined to 1.2% and 20.4% respectively.
“Encouragingly, the banking sector, in different scenarios of stress testing exercise, shows sufficient resilience to withstand severe shocks to key risk factors and hypothetical adverse economic conditions,” the Review said.
The Review also revealed that domestic financial markets witnessed relatively lower stress during H1CY24 as compared to the corresponding period of year 2023 in the wake of gradual improvement in macroeconomic conditions and reduction in country risk premium, which kept financial markets volatility under check.
A relative stability in the FX market, which witnessed significant volatility in the corresponding period of last year, contributed to overall calm in the financial markets during the reviewed period, although equity market witnessed an uptick in the volatility, the Review said adding that money market, however, continued to operate in an orderly manner as SBP monetary policy operations kept interest rates in the policy range.
The review, besides covering the performance and soundness of domestic banking sector, also briefly covered the performance of financial markets as well as the results of Systemic Risk Survey (SRS), which represents views of independent experts about key current and potential risks to the financial stability.
Top three prevailing risks highlighted by the independent participants of the survey include “energy crisis” followed by “volatility in commodity prices” and “foreign exchange risk,” but they expressed confidence in the stability of the financial system and the oversight ability of the regulators as well, it added.