KARACHI: Banks earned Rs176 billion profit in the third quarter of this calendar year, recording a 44 per cent increase over the same quarter of the last year.

The State Bank, in its Quarterly Compendium (July-Sept 2014) issued on Thursday, stated that banks’ investment (mostly in government papers) increased by 148pc compared to the same quarter of last year.

The growth rate of net investment jumped to 17.1pc in September 2014 compared to 6.9pc in the corresponding quarter last year.

The central bank observed that the banking sector witnessed a substantial improvement during the July-September 2014.

The return on assets (ROA) and return on equity (ROE) rose to 1.4pc and 15.9pc respectively up from 1.1pc and 12.3pc a year earlier.

The reports showed that the banks earned most of their income from their investment in the government papers which did not change some important variables.

Capital Adequacy Ratio (CAR) of the banking system improved to 15.5pc in Sept 2014 compared to 15.1pc a quarter earlier largely on the back of healthy profits.

However, the CAR did not change compared to the same quarter of the previous year as it was 15.5pc in Sept 2013.

“The CAR at its existing level is well above the minimum ratio of 10pc set by the SBP, despite implementation of strict Basel-III capital standard,” said the State Bank.

“The stress test results also show that capital base of the system is strong enough to withstand unusual shocks due to credit, market and liquidity risks,” said the SBP.

The banks showed poor performance on advances particularly advances to private sector. The details showed that the advance to deposit ratio fell in the third quarter compared to the same quarter of the last year.

The ratio slipped to 48.2pc from 48.7pc. It also indicates that the banks’ main earning is not from the advances instead, the 148pc increased investment earned most of the profits.

“The indicators of asset quality of the banking sector, with marginal changes, also reflect stability. Non-performing loans (NPLs) to loan ratio net of provisions at 3.2pc in Sept 2014 is far below its peak of 6.4pc in Sept 2011,” said the State Bank.

Published in Dawn, November 21th, 2014