Pak­istan’s fi­nan­cial sys­tem size in­creases to Rs 9.2tr: SBP

The Pak Banker - - Company& -

IS­LAM­ABAD: Pak­istan's fi­nan­cial sys­tem size, in terms of as­sets, in­creased to Rs 9.2 tril­lion by end-June 2010 show­ing a ro­bust growth of 20 per­cent from De­cem­ber 2008 level of Rs 7.71 tril­lion, says State Bank's Fi­nan­cial Sta­bil­ity Re­view 2009-10, which was re­leased on Tues­day.

The re­port, which presents an as­sess­ment of fi­nan­cial sta­bil­ity for 2009 (CY09) and the first half of 2010 (H1-CY10), is based on the theme of "Role of Govern­ment in the Fi­nan­cial Sec­tor" and as­sesses the govern­ment's de­vel­op­men­tal role in en­hanc­ing the fi­nan­cial devel­op­ment in the coun­try. The re­port said that sta­bil­ity of the fi­nan­cial sys­tem is largely de­rived from the pre­dom­i­nant po­si­tion of the bank­ing sec­tor, as other com­po­nents of the fi­nan­cial sys­tem con­tinue to grow at a more grad­ual pace. "Do­mes­tic bank­ing sec­tor as­sets con­sti­tute 73.2 per­cent of to­tal fi­nan­cial sys­tem as­sets," the re­port added. It said the bank de­posits, which have a key con­tri­bu­tion in main­tain­ing fi­nan­cial sta­bil­ity, grew by 13.5 per­cent in CY09, and 8.2 per­cent in H1-CY10, bring­ing the to­tal de­posit of the bank­ing sys­tem to Rs. 5.1 tril­lion by end-June CY10. "This bodes well for en­hanc­ing prospects of fi­nan­cial sta­bil­ity, es­pe­cially keep­ing in view the slow­down in de­posits growth in CY08," the re­port added.

The de­posit growth is largely driven by the growth in home re­mit­tances of 23.9 per­cent (in USD terms), grad­ual eco­nomic re­cov­ery, and the sub­stan­tial in­crease in govern­ment bor­row­ing, a por­tion of which flows back into the bank­ing sys­tem in the form of de­posits, it added.

The re­port opined that healthy de­posit growth is in­dica­tive of banks' re­silience to the com­pe­ti­tion from the Na­tional Sav­ings Schemes (NSS), which gen­er­ally of­fer a higher rate of re­turn than bank de­posits. It said that the pace of de­te­ri­o­ra­tion in the qual­ity of ad­vances slowed down con­sid­er­ably as in CY09 Non Per­form­ing Loans (NPLs) in­creased by 24.2 per­cent to Rs 432 bil­lion and fur­ther by 6.4 per­cent to Rs 460 bil­lion by end-June CY10. ' Go­ing for­ward, NPLs re­main a key cause of con­cern for the bank­ing sec­tor,' it added.

How­ever, the Re­port noted that struc­tural weak­nesses in the process of rev­enue gen­er­a­tion, sig­nif­i­cant rigidi­ties in govern­ment spend­ing, ex­pan­sion in quasi-fis­cal op­er­a­tions have added to the fis­cal bur­den, which is in­creas­ingly fi­nanced from the fi­nan­cial sys­tem.

It pointed out that the banks' ex­po­sure to the govern­ment in­creased sig­nif­i­cantly dur­ing 2009 and in the first half of 2010, with par­tic­u­lar con­cen­tra­tion in the power sec­tor due to the on­go­ing is­sue of cir­cu­lar debt, and con­tin­ued in­crease in lend­ing to pub­lic sec­tor en­ter­prises and com­mod­ity fi­nance in gen­eral.

Find­ing the govern­ment to be a cap­tive client, banks' be­hav­iour to lend more to the govern­ment and to pub­lic sec­tor agen­cies im­pedes the process of pro­duc­tive ac­tiv­ity in the econ­omy, it said. This causes crowd­ing out of the pri­vate sec­tor, to the ex­tent that de­mand for credit ex­ists, which in turn car­ries long term im­pli­ca­tions for eco­nomic growth, with feed­back im­pact on banks' as­set qual­ity and hence on fi­nan­cial sta­bil­ity, it added. -App

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