Karachi: The State Bank of Pakistan (SBP) released its Mid-Year Performance Review of the Banking Sector for 2024 today. The report, covering January to June 2024, indicates that the banking sector has shown satisfactory performance and resilience, with significant growth in balance sheets driven primarily by investments in government securities. The review also touches on the stability of financial markets and the insights from the Systemic Risk Survey, reflecting expert opinions on potential financial risks.
According to State Bank of Pakistan, the banking sector’s balance sheet expanded by 11.5 percent in the first half of 2024, a growth mainly attributed to high government demand for bank credit. Despite this, advances to the private sector saw limited growth due to net retirements, although there was a slight revival in long-term financing to small and medium-sized enterprises (SMEs). This decline in private sector advances was notably less severe than in the same period the previous year.
On the funding side, the report highlights an 11.7 percent increase in deposits, with significant contributions from savings and current accounts. This rise in assets necessitated additional funding, maintaining the banks’ dependence on borrowing. The asset quality of the banking sector remained robust, with a modest increase in non-performing loans (NPLs) and an improved total provisioning coverage against NPLs reaching 105.3 percent by the end of June 2024.
The review notes a slowdown in earnings due to a decrease in return on advances and a contraction in net interest margin. However, non-interest income, including fee income and trading gains from government securities, helped bolster profitability. Key performance indicators such as Return on Asset (ROA) and Return on Equity (ROE) saw declines to 1.2 percent and 20.4 percent, respectively, from higher levels a year earlier. Despite these drops, the solvency position of the sector remained strong, with the Capital Adequacy Ratio improving to 20.0 percent, well above the minimum regulatory requirement.
Furthermore, the review discusses the results of the 14th wave of the Systemic Risk Survey conducted in July 2024, where the top three risks identified by experts were the energy crisis, volatility in commodity prices, and foreign exchange risks. Despite these challenges, there was a general confidence in the stability of the financial system and the regulatory oversight capabilities.
The SBP’s report underscores a banking sector that, despite some challenges, continues to demonstrate strength and stability amidst evolving economic conditions.
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