Performance of Pakistan Banking Sector

Topics: Asset, Investment, Bank Pages: 3 (842 words) Published: September 18, 2010
Banking industry begins to show signs of slowdown

After witnessing a strong growth during last few years, the banking industry has now started showing signs of slowdown, as deposits, assets, investment and profitability of banking sector is on decline while credit risk, market risk, interest risk, NPLs and advances are widening.

According to the assessment of the State Bank of Pakistan’s Quarterly Performance Review of the Banking System (July-September 2008), released on Thursday, due to deteriorating macroeconomic factors the performance of the banking system on asset quality and earnings has slightly declined.

Banking industry deposit component witnessed a significant decline of Rs 124 billion or 3 percent during the third quarter of 2008. Therefore, the share of deposits in overall funding structure declined to 73.8 percent from 76 percent in last quarter, the report said.

The SBP revealed that profitability of the banking system remained steady during the quarter though return indicators that slightly declined due to higher provisioning and operating expenses. The banking system posted a before tax profit of Rs 20.7 billion during the third quarter, translating into year to-date profit of Rs 82.1 billion whereas after tax profit stood at Rs 54.9 billion in September 2008.

The credit risk has somewhat increased since the previous quarter. The Non Performing Loans (NPLs) of the system increased by Rs 36 billion over the quarter. The increase in NPLs has been across all the banking groups except for foreign banks, the report said, adding that “the market risk profile of the banking system is also predominantly affected by the interest rate risk.”

During the quarter under review total assets of the banking system slightly declined as the deposits base contracted. The Sept-08 quarter witnessed a significant increase in advances that grew by Rs 167 billion and their share in total assets inched up to 56.1 percent, exceeding Dec-06 levels....
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