Bank profits fall 2.38pc to Rs123 billion in April-June

Banks earned Rs123 billion profit after tax in the second quarter of 2021, depicting a meager 2.38 percent decline over the same period of the last year.

The State Bank of Pakistan, in its Quarterly Compendium: Statistics of the Banking System (June 2021), issued said that banking sector profitability stood at Rs126 billion in April-June 2020.

All banks posted Rs58 billion profit after tax in the first quarter of the current year. Banks recorded a profit before tax of Rs217 billion in April-June 2021, the SBP's data showed.

Banks faced a slight decline in their earnings as they felt the impact of the lower interest rate environment, and the coronavirus pandemic. The slowdown in the year-on-year profitability of the banks was due to a fall in the non-interest income on the back of lower capital gains on government securities.

The growth rate of net investment fell to 29 percent in the second quarter of 2021 from 37.8 percent a year ago.

A higher provision of non-performing loans (NPLs) also led to a decrease in the banks' profitability in the period under review. The provisions held against NPLs stood at Rs755 billion at the close of June 30, 2021, compared with Rs691 billion in the corresponding quarter of last year. The return on assets (ROA) and return on equity (ROE) declined to 1.6 percent and 23.5 percent respectively from 1.9 percent and 25.2 percent a year earlier.

The capital adequacy ratio (CAR) of the banking system stood at 18.3 percent in April-June 2021 from 18.7 percent in the same period of the last year.

Banks' net advances to the private sector rose to Rs8.808 trillion from Rs8.065 trillion. This was due to higher auto loans and Temporary Economic Refinance Facility.

The SBP's compendium details showed that the advance to deposit ratio fell in the second quarter, compared with the same quarter of the last year. The ratio fell to 43.1 percent from 46.3 percent.

Banks' deposits rose to Rs20.441 trillion from Rs17.404 trillion. The indicators of asset quality of the banking sector showed that total NPLs increased to Rs851 billion from Rs691 billion.

Analysts expect banks to continue building general provisions in anticipation of a possible implementation of the International Financial Reporting Standard (IFRS-9). Recently, the SBP has announced January 1, 2022, as the effective implementation date for IFRS-9 and has directed financial institutions to do parallel reporting thereon.

Earlier, Pakistan has received $2.75 billion from the International Monetary Fund (IMF) under its new allocations for member countries to fight against Covid19 challenges, the central bank reported on Tuesday.

The latest receipt is expected to lift the country's foreign currency reserves to an all-time high of $20.4 billion

The Washington-based global lender released the funds for Islamabad under its historic funding of $650 billion for the developing and developed member countries.

The new allocations are aimed at elevating the member countries' foreign exchange reserves to enhance their capacity to make international payments for imports and foreign debt repayments as well as enhance the pace of global economic recovery from the impact of the ongoing health crisis.

The inflows have not only improved Pakistan's capacity to make international payments but also enhanced its ability to arrest the current depreciation in rupee against the US dollar and other major currencies of the world.