KARACHI: The International Monetary Fund (IMF) has lauded the performance of Pakistani banking sector due o its robust earnings and high solvency ratios.
According to IMF report, the banking industry pre-tax profit surged by 49 percent year on year (YoY) through December, mainly attributed to increased net interest income, lower provision charges and higher non-interest income.
The capital adequacy ratio (CAR) increased noticeably to 17.1 percent due to accumulation of profits and fresh equity injection by some banks (including previously CAR noncompliant banks).
To further improve market discipline and enhance assessment of soundness of financial sector, State Bank of Pakistan (SBP) has evaluated and identified the ‘encouraged’ set of financial services institutes (FSIs).
As of end-December 2014, asset quality has slightly improved with a decline in non-performing loan (NPL) ratio to 12.3 percent and net NPLs to net loans ratio falling to 2.7 percent.
The risk to banking system seems to be negligible, as they encompass only 1.39 percent of banking system assets. Of two remaining banks, one increased its CAR to 9.41 percent via an injection of advance share deposit money in December 2014. The bank is expected to complete a rights issue soon, which will enable it to become CAR compliant.
SBP is making progress in bolstering banks below the minimum capital requirement. The number of CAR noncompliant banks has fallen from three to two due to capital injections. The combined CAR shortfall for two noncompliant private banks has decreased by Rs 3.3 billion over quarter to Rs 7.96 billion (less than 0.03 percent of gross domestic products) as of end December 2014.
Federal government at request of SBP has placed second bank under a moratorium for a period of six months, effective November 14, 2014. A scheme for reconstruction or amalgamation is under consideration. Four banks have expressed interest in acquiring the bank and are currently conducting due diligence.
IMF expressed its reading in Letter of Intent (LoT) said, “We remain dedicated to protecting financial stability by reinforcing regulatory and supervisory framework.”
