As deposits and lending rise, so do Pakistan banks' profits

Islamabad - Gains on bigger volumes, enlarging transactions and growing business rising

Commercial bank profits in Pakistan are going up on the back of rising deposits and growing lending.
The profits on bigger volumes, enlarging transactions and growing business are rising. This is so even though the spread is also down to around five per cent from its sunny days of seven per cent. The interest rate is down to 5.75 per cent.
Overall deposits of all commercial banks stood at Rs10,726.66 billion on March 3 according to the latest report by the State Bank of Pakistan (SBP), the central bank. Deposits and other accounts of specialised banks stood at Rs71.07 billion. Total assets of banks were at Rs14,941.67 billion.
Lending by banks rose, too, the SBP said. The gross advances of all scheduled banks stood at Rs5,502.81 billion in the first quarter of fiscal year 2017. Lending by banks in the same period was Rs4,835.19 billion, which was 13.8 per cent higher than the same period of fiscal year 2016.
Borrowing by all scheduled banks rose 2.8 per cent to Rs2,025.84 billion in fiscal year 2017, compared to Rs1,990.44 billion in fiscal year 2016.
The central bank reports a much-awaited rise to Rs7,525.10 billion in investments by banks in fiscal year 2017, up from Rs7,039.33 billion in the past year. It shows a rise of 6.9 per cent.
The approved foreign exchange reserves with banks were Rs996.45 billion in March, compared to Rs923.4 billion, a year ago, which is higher by 7.9 per cent.
All these statistics of the banking sector confirm a definite growth in all these sectors.
The banks' operations and profits are projected to rise, though at a slower pace than the last few years. But the economy is moving up. Bankers are not likely to gain seven per cent-plus spreads, as in the past several years when this rate was the highest in the world. Spreads and profits are low because the SBP-set soft monetary policy had reduced the interest to as low as 5.75 per cent - the lowest in the last 43 years. Fiscal year 2016 saw a reduction of 2.2 per cent in the mark-up income of banks. The average spread, as a consequence, is now around five per cent.
But all said and done, the economy is moving up at a good pace as stated by Finance Minister Ishaq Dar who insists: "We project the GDP growth of five per cent-plus even if it does not turn out to be the hoped-for 5.7 per cent." It will provide reasonably good profits to all sectors of the economy.
The Pakistan stock market index PSX-100, for instance, within a short span of time, has shot up and crossed 50,000 points in recent weeks. It faced a small downturn, and the PSX these days is moving in the range of 48,697.65 on March 20 - the opening day the week, which moved to 49,016.78 later in the week.
During three-and-a-half years of the government of pro-business Prime Minister Nawaz Sharif the index has moved from around 35,000 to the current level - nearly a whopping one-third up.
The improving health of the Pakistani economy is also testified by international rating agencies and global stock market operators who have described the Pakistan Stock Exchange as "one of the top 10 emerging markets worldwide".
Besides other big foreign businessmen and financiers flocking to buy PSX shares, there is a growing interest of the investors from the UAE and China - part of which is related to the ongoing implementation of the $56 billion China-Pakistan Economic Corridor (CPEC). The CPEC-related investment and other FDI indicators are leading up to larger banking transactions and growing bank profits. This is happening despite one or the other quarter of the financial year coming out with somewhat smaller bank profits.
A good thing that has happened to the banking sector is that non-performing loans advanced to corporate clients went down in the last quarter of fiscal year 2016.
"The infection ratio in the corporate segment declined to 10.6 per cent at the end of December, from 12.3 per cent at the end of the third quarter of FY-16. NPLs in the corporate segment fell to Rs 431 billion from Rs443.6 billion a quarter ago," the SBP said.
It is a good sign because not only will banks have larger funds to advance, but it also confirms that the borrowers, including industry and businesses, are getting economically stronger and are now in a position to quickly repay their loans.
"Although the textile industry is now beginning to look up, it was at the top in terms of both infection ratio and NPLs in FY-16. But both these indicators witnessed a drop in the last quarter of FY-16," the central bank says. "The infection ratio for the textile sector fell to 22.6 per cent at the end of December from 27 per cent at the end of first quarter [July-August] of FY-17. Its NPLs declined from Rs196.5 billion to Rs192.5 billion."
The production and transmission of energy, which received the highest amount of advances, recorded its NPLs of just Rs3 billion. Its advances rose to Rs892 billion at the end of December. Its infection ratio was just 3.5 per cent, down from 4.4 per cent a quarter ago.
Looking at this performance of the sector, all indications are that banking will continue to grow - and continue to be profitable.
The writer is based in Islamabad. Views expressed are his own and do not reflect the newspaper's policy.

• Pakistan