KARACHI: Despite pandemic the profits of the banking sector surged by 42.92 per cent in calendar year 2020, the State Bank of Pakistan (SBP) said on Wednesday.

The SBP in Financial Stability Review CY20 noted that drastic cut in policy rate during March to June 2020 transmitted into lower funding costs on deposits due to immediate re-pricing of saving deposits. On the other hand, interest earnings were supported by increase in the volume of investments in government securities.

Banks investments shot up by 33.51pc to Rs12 trillion during CY20 (12.96pc rise in CY19) predominantly driven by investments in government securities. Weak financing demand, abundant liquidity, and high government budgetary borrowing needs accelerated banks’ investments.

“Despite pandemic driven stress, banking sector’s assets grew by 14.24pc during CY20—higher than 11.73pc growth observed in the previous year,” said the report.

Stress test results of the banking sector also show that, even against adverse economic conditions, the banking sector is likely to maintain resilience over a three-year projection horizon, said the SBP report.

The report says that the performance of Islamic banking institutions (IBIs) was notable as their asset base expanded by 30pc during CY20 due to decent growth in financing and a surge in investments.

It notes that the financial system of Pakistan exhibited resilience and continued to perform its operations in a challenging environment. The sector’s asset base expanded by 14.08pc in CY20 as compared to 11.61pc in the previous year.

Strong earnings, in turn, enhanced the solvency of the banking sector, as capital adequacy ratio (CAR) increased by 156 basis points to 18.56pc at the end of CY20 — well above the minimum regulatory requirement of 11.5pc.

The credit decelerated across some economic sectors while made net retirements in others. Textile sector, however, availed highest financing during the reviewed year, said the report. Marked rise in deposits enabled banks to finance investments of around Rs3tr.

The stock of banks’ non-performing loans (NPLs) increased by 8.91pc to Rs829bn during CY20. Importantly, the flow of NPLs increased by Rs85bn amid the height of uncertainties during first half which subsided to Rs68bn by the year end.

More than 50pc rise in NPLs during CY20 was observed in agribusiness, energy, and sugar sectors. The flow of NPLs in the agribusiness amounted to Rs17bn against Rs6bn in CY19.

From the start of the pandemic to end June 2020, loans of Rs566bn were deferred and Rs113bn allowed for restructuring and rescheduling, said the report.

The SBP provided a comparative study of global financial crisis (GFC) of 2008-09 and ongoing impact of Covid-19. The global output loss was 0.6pc in 2008-09 while Covid related estimated global output loss is 3.3pc.

Less than 60pc economies of the world experienced sub-zero growth in GFC while more than 80pc economies of the world are likely to experience sub-zero growth.

Published in Dawn, July 8th, 2021