KARACHI: The profitability of the banking sector may come under pressure in the next quarter as low interest rates, receding investments in government securities and maturity of high-yielding Pakistan Investment Bonds (PIBs) are already keeping banks’ earnings in check in Jan-March, said a report by the State Bank of Pakistan (SBP) on Friday.

The Banking Performance Review for Oct-Dec 2016 showed profits of the banking sector dropped to Rs190 billion for 2016 compared to Rs199bn a year ago. “Low interest rates and reduced banks’ investment have impacted the earnings of the banking sector in 2016. Consequently, the profit-after-tax of Rs189.9bn is 4.6pc lesser than the level seen in the last calendar year,” said the report.

However, net advances increased 14.2pc to Rs5,499bn in 2016, the report said.

“The banking sector recorded a reasonable performance during the quarter under review. The key highlight is the highest quarterly growth in advances to the private sector in the last 10 years, which has contributed to most of the increase in assets,” said the report.

The lagged effect of consistent easy monetary policy, ample availability of liquidity owing to high deposit growth and maturing PIBs, CPEC-related activities and positive economic outlook are the major driving factors behind the impressive growth in advances, said the SBP report.

Bank-wise statistics reveal a broad-based contribution to banking earnings. As many as 31 banks posted profits while loss-making banks were just three in 2016. “The concentration of earnings has slightly increased as the share of top five banks in total profits has increased to 63.3pc in 2016 from 61.5pc in 2015,” it said.

The deposit base increased 6.4pc during the fourth quarter of 2016 – against 6.9pc in the comparable quarter of 2015 – to reach Rs11.8 trillion on December 31, 2016. For the entire year, growth remained 13.6pc, which is higher than the three-year average of 12pc (2013-15).

Published in Dawn, March 4th, 2017