KARACHI: The profit of the State Bank of Pakistan (SBP) registered a modest year-on-year growth of four per cent in 2016-17, according to the annual performance review issued on Tuesday.

It amounted to Rs238 billion in the last fiscal year against Rs229bn in 2015-16. Its income on foreign currency assets registered an increase of almost 50pc. The central bank paid Rs227bn profit to the federal government.

The SBP said the banking sector constitutes around 74pc of the country’s financial sector with an asset base equivalent to almost 55pc of the country’s GDP. It said lending to the federal government and commercial banks remained major sources of its profit followed by earnings on foreign exchange reserves.

Lending to federal govt, banks remained major sources of income

This increase in earnings is primarily attributable to a rise in discount income by Rs 21bn and interest earned on foreign assets by Rs5.3bn. It was partly offset by a decrease of Rs17.5bn in income on reverse repo transactions.

Interest income increased over 3pc to Rs260.8bn. However, interest earned on lending to the federal government increased 14pc due to a significant rise in government borrowing from the central bank. Interest earned on lending to commercial banks through reverse repos reduced 22pc due to significantly lower volumes of these operations.

The increase in the income on foreign currency assets was partly attributable to a rise in the yield on reserves due to the upward movement of interest rates in international financial markets. In part, it was because of an increase in the average volume of foreign exchange reserves during the year.

Interest earned on the export finance facility (EFF) and other related refinance facilities declined to Rs6.4bn in 2016-17 from Rs7.2bn in 2015-16 due to a reduction in interest rates.

Although average outstanding loans to banks under refinance schemes increased significantly during the year to Rs287bn from Rs199bn in 2015-16, the average interest rate reduced from 3.5pc to 2.2pc in the last fiscal year, causing a decline of over Rs2bn in interest earned on refinance schemes.

“The commission income increased 36pc year-on-year largely due to an increase in the commission on market treasury bills,” said the report.

The SBP earned a net exchange gain of Rs24.5bn in 2016-17 against Rs25.7bn earned in 2015-16, registering a decline of 5pc. The rupee depreciated against the dollar by Rs0.020 and appreciated against the special drawing rights (SDR) by Rs0.366. Accordingly, the depreciation against the dollar resulted in the exchange gain of Rs8bn while the appreciation against the SDR led to the exchange gain of Rs2.7bn. The remaining net exchange gain of Rs12bn is due to the appreciation and depreciation of the rupee against other currencies.

The total expenditure during the year was Rs41.7bn against Rs 40.8bn in 2015-16, registering an annual increase of 2.18pc. The increase was due to an increase of 18pc and 8pc in banknote-printing charges and agency commission, respectively. Its impact was partly offset by the reduction of Rs2.5bn in the salary cost and retirement benefits.

Published in Dawn, November 1st, 2017