The State Bank of Pakistan (SBP) has indicated steady profitability of the banks in the outgoing year 2021 in the wake of an uptick in business activities.
The banking regulator pointed out the bank’s financial soundness as satisfactory in the Performance Review of the Banking Sector a few days after the closing of the calendar year, whereas the banks will disclose their yearly profit in the next few weeks.
In the perspective of banks’ financial soundness and performance, private sector advances—aided by a seasonal upturn in demand and rise in input price—observed further stimulation during the second half of 2021. The growth in advances was quite broad-based as most of the economic sectors availed additional financing.
In particular, the corporates availed higher amounts of fixed investment loans to finance their capital expenditures while the households increased borrowing in auto and mortgage categories. The improved performance of key economic sectors and an increase in financing also boosted the asset quality indicators of the lending portfolio.
However, any challenging conditions due to a resurgence in infections and COVID-19 variants may restrain the financing growth. Against this backdrop, amid the credit demand of the government, investment in government’s securities is likely to remain another preferable fund deployment alternative for banks.
From the credit risk point of view, the performance of loans deferred or rescheduled under pandemic-related support measures will remain important. Incidentally, the latest statistics indicate that these borrowers, in general, are regular in servicing their obligations. The latest results of the stress testing exercise also indicate that the banking sector has sufficient resilience to withstand a severe distress projection horizon of two years.
Though economic activity has gained momentum in 2021 over the last year, it remains susceptible to the evolving pandemic situation and changing geopolitical dynamics. In this backdrop, banks need to continuously monitor and manage their risks and meet the banking needs of the economy by prudently balancing the objectives of growth and financial soundness, the SBP said in its review.
