Pakistani Banks Strong Performance
Pakistan's banks are showing strong performance with significant growth in deposits, assets and private sector credit. All areas of banking, including commercial, mobile and Islamic banking, are contributing to it.
Commercial Banking:
Pakistan's commercial banking industry grew by 16.1 percent during fiscal year 2015/16. Strong aggregate demand and improving business sentiments were seen in private sector credit growth of 12 percent, expanding by Rs. 461 billion in FY16 from Rs. 224 billion in the prior year, according to a World Bank report in the media.
Mobile Banking:
Mobile banking transactions in Pakistan grew to Rs. 1.5 trillion during 2015-16. The State Bank of Pakistan (SBP) has recorded Rs. 543.6 billion in branchless banking transactions in the latest quarter, sequential growth of 6.8% over the previous quarter. It's a good sign of growing financial inclusion in the country.
Islamic Banking:
Islamic banking industry continued its double-digit growth during fiscal year 2015-16 (FY16) with 16.8% and 14.1% year-on-year (YoY) growth in assets and deposits respectively, according to the State Bank of Pakistan. Islamic banking share of banking in Pakistan has nearly doubled in the last 5 years. It now accounts for 13% of the overall banking industry, up from 7.8% five years ago.
Demand for Liquidity:
Pakistani banks have increased their deposits by over a trillion rupees since January 2016. However, strong demand for liquidity in a growing economy has forced the State Bank of Pakistan (SBP) to inject another Rs. 880 billion into the banking system just last week, according to news reports.
Summary:
Banks are a good barometer of a nation's economic health. Growth in banking in Pakistan is a good sign of accelerating economic growth in the country.
Related Links:
Haq's Musings
Mobile Banking in Pakistan
Financial Inclusion in Pakistan
Financial Services Industry in Pakistan
China Pakistan Economic Growth
ADB Raises Pakistan GDP Growth Forecast
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| Karachi Financial District |
Pakistan's commercial banking industry grew by 16.1 percent during fiscal year 2015/16. Strong aggregate demand and improving business sentiments were seen in private sector credit growth of 12 percent, expanding by Rs. 461 billion in FY16 from Rs. 224 billion in the prior year, according to a World Bank report in the media.
Mobile Banking:
Mobile banking transactions in Pakistan grew to Rs. 1.5 trillion during 2015-16. The State Bank of Pakistan (SBP) has recorded Rs. 543.6 billion in branchless banking transactions in the latest quarter, sequential growth of 6.8% over the previous quarter. It's a good sign of growing financial inclusion in the country.
Islamic Banking:
Islamic banking industry continued its double-digit growth during fiscal year 2015-16 (FY16) with 16.8% and 14.1% year-on-year (YoY) growth in assets and deposits respectively, according to the State Bank of Pakistan. Islamic banking share of banking in Pakistan has nearly doubled in the last 5 years. It now accounts for 13% of the overall banking industry, up from 7.8% five years ago.
Demand for Liquidity:
Pakistani banks have increased their deposits by over a trillion rupees since January 2016. However, strong demand for liquidity in a growing economy has forced the State Bank of Pakistan (SBP) to inject another Rs. 880 billion into the banking system just last week, according to news reports.
Summary:
Banks are a good barometer of a nation's economic health. Growth in banking in Pakistan is a good sign of accelerating economic growth in the country.
Related Links:
Haq's Musings
Mobile Banking in Pakistan
Financial Inclusion in Pakistan
Financial Services Industry in Pakistan
China Pakistan Economic Growth
ADB Raises Pakistan GDP Growth Forecast
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http://www.dawn.com/news/1297480/global-index-records-drop-in-terrorist-activities-in-pakistan-during-2015
Pakistan recor-ded a substantial decrease in terrorist activities last year, with 45 per cent fewer attacks and 38pc fewer deaths reported in the year than in the previous year, according to the report of the ‘Global Terrorism Index (GTI) 2016’.
This is the second consecutive year in which Pakistan has seen reduction in terrorist activities. Terrorism in the country is now at its lowest level since 2006, says the report released by the US-based Institute for Economics and Peace, an independent think-tank.
The GTI is based on data from the Global Terrorism Database which is collected and collated by the National Consortium for the Study of Terrorism and Responses to Terrorism, a department of the Homeland Security Centre of Excellence led by the University of Maryland.
Pakistan had the third largest decline in deaths. There were 677 fewer deaths in Pakistan. As a result, Pakistan had the lowest number of deaths from terrorism since 2008, said the report released on Thursday.
The reduction in deaths from terrorism is in part explained by Zarb-i-Azb military operation being carried out by Pakistan Army. The operation focused on removing militant safe havens in North Waziristan.
Pakistan continued to see decline in its levels of terrorism due to infighting within the largest active group, the Tehreek-i-Taliban Pakistan (TTP), as well as to the operations of the army in the Federally Administered Tribal Areas.
Although the TTP reduced the number of attacks in Pakistan, it was still responsible for the most attacks, according to the report. In 2015 the group was responsible for 36pc of the deaths, totalling 240 people. This was down from 59pc of the deaths, totalling 544, in 2014, representing a sharp year-on-year reduction.
Although the number of attacks declined, terrorist activities was spreading across the country. It moved from the border region with Afghanistan to many other parts of the country, especially the Punjab province in the east which is the most populated area of Pakistan. A total of 429 cities experienced terrorist attacks in 2015, up from 17 in 2000. This may create a much more difficult situation for the Pakistani government in the coming years.
Payment systems in Pakistan have shown significant growth in 2016 by using digital transaction channels, State Bank of Pakistan (SBP) has stated in a Press Release.
SBP listed the facts and figures of Financial Year 2016 in the latest press release. SBP also mentioned that Real-time Gross settlement (RTGS) has increased to 29% in value from Financial Year 2015. The use of electronic and digital technology in making transactions is in line with SBP’s mission of promoting digital payments in Pakistan.
The volume of paper-based transactions has decreased significantly and e-banking is slowly replacing it. E-banking transactions have increased by 16% in volume and 4% in value, as compared to FY15. E-banking is an electronic payment system in which customers can make transactions like withdrawals, transfer of funds, bill payments etc., using mobile and the internet.
The use of Alternate Delivery Channels (ADCs) like ATMs, Point of Sale (POS) terminals, internet and mobile banking also showed rising trends. The internet and mobile banking increased by 18% and 8% in value respectively, as compared to 2015. It states
“Payment System infrastructure also showed phenomenal growth during the period under review. The number of branches increased from 11,937 to 13,179 whereas total number of ATMs installed in the country increased from 9,597 to 11,381 during the year.”
SBP functions as the central bank of Pakistan and it regulates the monetary and credit system. It works on the expansion of financial infrastructure by incorporating digital technology like cards, wallets, ATMs, POS, gateways, mobile and internet. It also ensures the security of the payments and transactions.
http://www.khaleejtimes.com/buzzon/jobs/banking-financial-services/strong-deposit-growth-bodes-well-for-pakistan-banks
Banks advanced Rs5.6 trillion to the private sector in 2016, which is 17 per cent more than 2015
Deposits at Pakistan's commercial banks reached Rs11.2 trillion as of December 30, 2016. At this level, it works out as a 20.4 per cent year-on-year growth in deposits compared to the last three years.
Add to it the good news that banks advanced Rs5.6 trillion to the private sector in 2016, which is 17 per cent more than 2015 when only Rs4.8 trillion was sanctioned.
Banking and equity sector analyst Umair Naseer of Topline Securities said this is significantly higher than the historical average growth of 12 per cent in the past three years. He added that the strong deposit growth bodes well for banks as it remains the key earning driver in a low interest rate environment.
This is a success story for the banking sector as it took place at a time when some sectors of the economy, including the biggest one such as textiles - are still struggling to match their good performance in the past. At the same time, exports, hit by the international crash of oil and commodity prices and lower domestic output, declined from $24 billion to $19 billion in 2016.
The easy money policy of the State Bank of Pakistan (SBP), the central bank, has brought down the interest rate to 5.75 per cent - the lowest in 42 years. The banks have also been slashing the profit rate payable to depositors. This, in turn, was holding up a major growth in deposits.
The government of Pakistan, financial institutions and economists firmly believe that commercial banks should redouble their efforts and undertake a major deposit mobilisation campaign so that they can lend more money to the credit-starved private sector, including key industries such as textiles and the stagnant export sector. The government has to share part of the blame for credit shortage in the private sector as it has been borrowing heavily to fill its budgetary gap.
The current year will need redoubling of the deposit mobilisation efforts for growth as there are already some economists who feel the rate may be reduced to the range of 13 to 15 per cent. This is because, in the recent past, the government deposited larger amounts of money in these banks to earn larger profits. But this practice is almost over.
The SBP recently reported that bank investments rose eight per cent to Rs7.2 trillion last year. This helped the economy to look up after years of slowdown. It also confirms the fact that the economy is looking up under pro-business Prime Minister Nawaz Sharif, whose party will face new parliamentary elections in the first half of 2018. Other key elements which can help him win these elections will be the fast-track implementation of the $61 billion Chinese investment in the China Pakistan Economic Corridor (CPEC).
Other positive factors are the recently announced FDI inflow from the UAE, Saudi Arabia and other countries, attracted by CPEC and the improved investment climate in Pakistan, and revival of the overall economy.
The Chinese investment in financial and equity sectors and energy is now very substantial. A consortium of three Chinese and two Pakistani companies have bought 40 per cent shares of the PSX - the Karachi Stock Exchange, for $80 million. Besides attracting more Chinese FDI, it is likely to encourage other foreign countries and companies to invest in Pakistani shares and the financial market.
http://www.cambridgenetwork.co.uk/news/how-mobile-banking-helps-pakistans-poor/
Research carried out in Pakistan indicates that mobile phone banking can help alleviate poverty, improve women’s rights through financial and social inclusion and reduce corruption in developing countries.
The study by Dr Atika Kemal of Anglia Ruskin University’s Lord Ashcroft International Business School, is the first to look at how mobile banking innovation can help with the disbursement of government-to-person payments in state welfare programmes.
Dr Kemal studied the Benazir Income Support Programme (BISP) in Pakistan, which was launched in 2008 and is one of the largest social protection programmes in Asia.
BISP provides over 5.3 million low-income households with 4,500 Pakistani Rupees (approximately £34.50) every quarter. The payments are disbursed digitally to women only, as heads of the household.
Pakistan has a population of over 180 million, but only 23 million bank accounts, 11,600 bank branches and 6,232 ATMs across the country (compared to 70,000 ATMs in the UK). The shortage of banking infrastructure is particularly severe in rural areas. Mobile banking has become popular for the poor by providing bank accounts to advance financial inclusion in underserved communities.
The BISP payments were initially distributed to households in cash or money orders via a network of local parliamentarians and postmen. In 2010, mainly to improve transparency, visibility, security and efficiency in the delivery of social cash, a shift to digital technologies, including mobile banking, took place in selected districts.
However, due to the high costs in funding mobile handsets to women, besides other security reasons, mobile banking was gradually phased out and eventually replaced by the Benazir Debit Card.
BISP is primarily funded by the Government of Pakistan, but also receives financial support from multilateral and bilateral donor agencies, including the World Bank and the Department for International Development (DfID) in the UK.
Dr Kemal, an Associate Lecturer at Anglia Ruskin University, said: “The transition from cash-based to digital payments was really due to pressure from international agencies which had invested in the programme. While some political actors resisted the shift to mobile banking, it led to increased accountability and governance, and a reduction in administrative and transaction costs. Financial inclusion was really only a secondary objective for BISP.
“However, from the perspective of women, mobile banking provided flexibility and convenience to cash the full amount of grants at various locations such as banking agents, ATMs and point-of-sale machines via a secure PIN known only to the beneficiary. This eliminated the practice of politicians or postmen demanding bribes for delivering the cash payments at home.
“BISP is also responsible for women’s empowerment through social and political inclusion. Women were issued with national identity cards that were mandatory to register with BISP and to eliminate identity theft when cashing payments. This not only boosted their social standing and authority in their households but also granted political freedoms through assisting their rights to exercise their vote in elections.
“However, my study also found that the majority of women were illiterate, so they encountered digital and financial hurdles. Also, other infrastructural constraints, such as weak mobile signals and power outages in their homes, affected mobile phone usage. Women were also dependent on more literate family members or friends for reading text messages to notify them of payments.”
Growth of sharia-compliant investment funds in Pakistan is helping fuel demand for sukuk, or Islamic bonds, giving local firms new funding options while strengthening the case for Islamic pensions in other majority-Muslim countries.
Strong demand for Islamic funds, and in turn sukuk, could encourage other countries trying to deepen their Islamic capital markets, in particular in the Gulf region where private pensions are rare.
Pakistan's Islamic banks lag their conventional peers, holding around 13 percent of total deposits, while Islamic mutual funds and private pensions have a far greater market share.
Islamic mutual funds held 242.7 billion rupees ($2.3 billion) in assets as of December, or 37 percent of the total, official statistics show.
Almost two-thirds of assets in the country's voluntary pension system (VPS) are now managed under Islamic principles.
All 10 VPS managers offer Islamic pension products, worth a combined 14.5 billion rupees, or 63 percent of total VPS assets with the largest VPS product being sharia-compliant.
Attractive yields, tax exemptions and greater flexibility in choosing external managers have made VPS products popular, which in turn adds to demand for sukuk, said Abdullah Ghaffar, head of investment banking at Al Baraka Bank Pakistan.
"Mutual funds, both fixed income as well as equity funds, have become big time investors in existing and new sukuk issues taking place because of the huge assets under management under their disposal."
Two recent sukuk transactions from manufacturing companies attracted significant interest from such investment funds, while equity funds are also becoming active in initial public offerings, Ghaffar added.
Reforms from Pakistan's capital market regulator have also helped equity-like financing vehicles, known as modarabas, to grow their combined assets above 41 billion rupees.
This has attracted a wide range of issuers: Byco Oil Pakistan Limited raised 3.12 billion rupees via sukuk using a credit gurantee and Ghani Gases raised 1.3 billion rupees via a privately-placed sukuk last month.
In December, Fatima Fertilizer Company mandated banks to raise 10.5 billion rupees through a lease-based sukuk.
Pakistan GasPort Consortium Limited plans to raise 8.6 billion rupees via seven-year sukuk to finance the construction of the country's second LNG import terminal.
https://www.thenews.com.pk/print/255270-sbp-sees-private-credit-off-take-to-boom-in-q4
“The seasonal pattern along with robust growth in large scale manufacturing index observed during Jul-Sep 2017 suggests that advances to private sector will rise in Q4CY17,” the central bank said in the quarterly performance review of the banking sector on Tuesday.
“Less than normal seasonal fall in advances along with improved liquidity and strong solvency – well above the minimum benchmark – are the key highlights of the 3rd quarter of CY17.” Though gross advances to private sector decreased Rs5.4 billion in July-September 2017, they were significantly lower than the contraction of Rs112.2 billion during the same period of last year.
“Banking sector’s asset base has expanded marginally during third quarter, though, on year-on-year basis, the growth has been quite robust (16 percent),” the central bank said. “Encouragingly, share of fixed investment (long-term) loans in total loans continues to rise indicating improved business confidence.”
The central bank said low interest rates help credit flow into the real economy. “However, the banking sector’s review showed that corporate borrowing was a little bit disappointing during the third quarter.”
It further added that advance-to-deposit ratio inched down 48.3 percent in July-September 2017 from 48.7 percent in the previous quarter. The central bank suggested banks to boost their ability to maximise benefits from pickup in economic activity driven by China-Pakistan Economic Corridor.
“In order to deliver better performance, banks need to calibrate the changing macroeconomic environment in their business models to capitalise the emerging opportunities as arising from, generally, growth in the economy and, particularly, from the China Pakistan Economic Corridor (CPEC),” it said.
The SBP said the risks to the resilience of the banking sector are likely to remain muted in the last quarter of 2017 as capital adequacy ratio is expected to remain well above the minimum regulatory requirement despite narrowing return margins and anticipated rise in risk weighted assets.
Banks posted profit of Rs111.7 billion in the third quarter, as compared to Rs89.9 billion in a quarter ago. The central bank said earnings of the banking sector have moderated due to low interest rates and increased administrative expenses, in addition to one-off settlement payment made by a large bank.
Banking sector remains sound & stable in Q3CY17: SBP
https://www.brecorder.com/2017/12/12/386346/banking-sector-remains-sound-stable-in-q3cy17-sbp/
Advances demand from textile and other sectors (agriculture, automobiles, electronics etc.) have been promising. Noticeably, the share of fixed investment (long-term) advances in overall advances is persistently rising.
Banks have continued to invest in short term MTBs while investment in PIBs and Sukuk have declined. The deposit mobilization has remained on track, primarily, on the back of growth in saving and fixed deposits.
Asset quality has improved as Non Performing Loans (NPLs) to gross advances (infection) ratio has moved down to 9.2 percent as of end September 2017 from 9.3 percent as of end June 2017.
However, profitability has moderated further with the banking sector earning profit (before tax) of PKR 195.3 billion during Jan-Sep, 2017 (ROA of 1.6 percent and ROE of 19.1 percent).
Encouragingly, Net Interest Income (NII) has improved (Year-on-Year basis) on account of rising interest earned on advances. Capital Adequacy Ratio of the banking sector at 15.4 percent is well above the minimum required level of 10.65 percent and advocates that banks have enough buffers available to meet additional financing need of the market.
Bahrain-based lender to add more than 100 branches in Pakistan this year through its subsidiary Faysal Bank
http://gulfnews.com/business/sectors/banking/bahrain-s-ithmaar-bank-plans-aggressive-expansion-in-pakistan-1.2164818
Dubai: Bahrain-based Ithmaar Bank plans to add more than 100 branches in Pakistan this year through its subsidiary Faysal Bank, to capitalise on the country’s low penetration rate of banking services, a senior executive said.
Ithmaar Bank owns 66 per cent of Faysal Bank, whose contribution to the Islamic retail bank’s overall balance sheet would likely grow to more than half as a result of the expansion, Ithmaar Deputy Chief Executive Abdul Hakeem Al Mutawa said on Monday.
“We are planning to be over 500 branches this coming year and are aggressive in this,” Al Mutawa said in an interview.
“Banking penetration is around less than 20 per cent in Pakistan, so there are good opportunities to grow.” Faysal Bank, which is listed on the Pakistan Stock Exchange, focuses on corporate, commercial, retail and consumer banking activities.
Al Mutawa was speaking after Ithmaar Bank’s parent company, Ithmaar Holding, listed on the Dubai Financial Market on Monday.
The company is already listed in Bahrain and Kuwait.
“The listing is good news for the company for growth capital and we are well established now to approach the capital markets,” Al Mutawa said, adding that the bank had no imminent plans to raise funds through a bond or loan.
In Bahrain, Al Mutawa said there were opportunities to grow the business from working with the government on providing financing for social housing. The bank currently has 16 branches in the kingdom.
Bahrain’s Ithmaar Holding is exploring the sale of its 25.4 per cent stake in Bahrain’s BBK BSC, which has operations in Bahrain and Kuwait, India and Dubai, sources familiar with the matter told Reuters in August.
Al Mutawa declined to comment on the time frame for the disposal of the BBK stake or identify the name of the company advising IB Capital, Ithmaar Holding’s investment subsidiary managing the asset.
“The performance of BBK is very good and still part of the portfolio of IB Capital, and if there are opportunities to maximise shareholder value I’m sure the board will take those,” he said.
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On average, banks charged 13.84% from borrowers and paid 8.71% to depositors – resulting in a spread of 5.13% in December 2019.
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Commenting on the latest data issued by the State Bank of Pakistan, Topline Research analyst Fawad Basir said, “Deposits of the banking sector grew 10% to Rs14.6 trillion in 2019 compared to 8% in 2018. The growth, however, remained lower than the five-year average of 12%.”
Banks mostly invested the deposits in the government papers as they offer secure and higher rate of return during times of such crisis compared to the credit they offered to business in the year.
Accordingly, investment in government securities (T-bills and Pakistan Investment Bonds) increased 16% to Rs8.8 trillion in 2019. Investment to deposit ratio (IDR) increased to 60% in 2019 from 57% in 2018.
“On the other hand, advances (like credit to private sector) grew by just 3% in 2019 hindered by high interest rates and slowdown in the overall economic activity. Over the past three years, advances have grown at an average of 19%,” he said.
“Going forward, we see deposit growth in the range of 10-12% and advances growth of 11-13% in 2020 at the behest of economic recovery and an expected decline in interest rates,” he said.
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“The prevailing high interest rate (which is at an eight-year high of 13.25% since July) has helped the financial business sector earn higher profit and dispatch enhanced amounts to the headquarters,” BMA Research Executive Director Saad Hashmi said while talking to The Express Tribune.
There is only one sector – banks – which managed to thrive under the ongoing economic reforms as majority of other sectors have been hit hard due to the economic slowdown in the country. “Profit of the entire banking sector is estimated to grow by a hefty 40% in the calendar year 2020,” he said.
“Foreign banks have been estimated to earn higher profits during times of high volatility in rupee-dollar parity (December 2017 – July 2019) and onwards when the parity got stabilized,” he said. “Besides, they also booked higher profits against hefty foreign investment of $2.56 billion in short-term sovereign debt securities (T-bills) of Pakistan since July 2019 to date.”
Transportation and storage sector, apparently the shipping and logistic firms, repatriated $156.6 million in the six months under question which is 3.56 times of $43.9 million dispatched in the same period of the previous fiscal year. On the other hand, the petroleum refinery sector managed to repatriate only $2 million in profit in the period under review compared to $46.7 million in the corresponding period of last year.
The refineries have been hit hard due to continuous production of the obsolete furnace oil as they failed to find any buyers until recent past. The furnace oil production hindered manufacturing of co-products like petrol and diesel and resulted in losses worth billions of rupees to them.
The rubber and rubber product sectors, which had extensively complained about the rampant smuggling in the country, dispatched zero profit in both the halves; the one under review and the other in comparison.
Fertiliser and electronic sectors also sent zero profits in the two halves.
The textile sector, which is believed to be the only profit making export sector, also dispatched zero profit in the six months compared to $0.7 million in the corresponding period of 2018. The manufacturing sector managed to dispatch $216.7 million, which is 12% lower than $245.5 million in the same period of last year.
“This reflected the hardship faced by the entire manufacturing sector during the ongoing economic reforms, including high interest rate and rupee depreciation till recent times,” Hashmi said.
Oil and gas exploration, tobacco and cigarettes, chemical and petrol chemical, and personal services sectors managed to dispatch comparatively higher profits.
Rating agency Moody’s has termed growth in remittances in Pakistan as credit positive for banks, saying foreign inflows improve their access to low-cost and stable deposits.
Moody’s, citing the State Bank of Pakistan’s (SBP) data, said workers’ remittances showed a 4pc year-on-year increase in the monthly average so far during the current fiscal year of 2019/20.
“This increase is credit positive for Pakistani banks because it supports deposit flows and strengthens households’ finances,” Moody’s Investors Service said in its credit outlook report.
During the fiscal 2012/19 period, remittances grew at a compounded annual rate of nearly nine percent, with the majority of inflows arriving from gulf cooperation council countries – 54pc of total remittances in 2019 –, followed by the US (16pc), the UK (16pc) and Malaysia (7pc). Remittances have grown even more, in terms of local currency, because the rupee has depreciated by more than 40 percent over this period, although the US dollar/rupee exchange rate has experienced significantly less volatility since mid-2019, Moody’s said.
Moody’s said the high levels of remittances contributed to a reported double-digit growth in residents’ household deposits. “Such growth benefits Pakistani banks by providing a stable and low-cost deposit base, which in turn enhances banks’ profitability and increases their liquidity buffers,” it said. “The growth will also help mitigate the effect of government deposit outflows from the potential introduction of a treasury single account that will require government deposits to be placed with the SBP instead.”
Moody’s is bullish on continued surge in remittances to Pakistan due to technology-driven ease in funds transfer and reduction in wire cost.
“We expect further growth in remittances, despite subdued growth in developed markets over the outlook period because of technological advances and the Pakistani authorities' focus on remittances and digitisation, which will further reduce the cost of repatriating funds,” it said.
Moody’s said increased remittances also support households’ disposable income and borrowers’ repayment capacity, mitigating the challenges posed by high interest rates.
“Households are better positioned to meet their financial obligations with banks and have historically maintained low nonperforming loan (NPLs) levels despite challenging conditions for borrowers,” it said. “Consumer NPLs accounted for 5pc of total consumer loans as of the end of September 2019, while the system average NPL ratio was 8.8pc.”
Moody’s expected a gradual increase in the ‘historically-low’ demand for personal credit and support to financial inclusion owing to increase in income. Personal credit accounted for 12pc of total private sector credit extended by banks as of December-end 2019, it said, citing the SBP’s data.
“Also, as households accumulate sufficient funds we expect them to overcome one of the main factors for financial exclusion and access a variety of banking products beyond loan services,” it added.
Moody’s, however, hinted at inability of Pakistani banking sector in carrying out remittances without the help of wire services.
“Domestic banks’ ability to offer this service on a stand-alone basis is constrained by their insufficient presence overseas,” it said. “Pakistani authorities have made continuous efforts to facilitate the faster and cheaper flow of remittances with efficient end-to-end use through increasing the number of channels and offering appropriate guidance.” Currently, remittance and payment service providers, through collaborations with commercial banks, primarily carry out remittances in Pakistan.
https://profit.pakistantoday.com.pk/2020/02/24/citibank-pakistan-scaled-back-and-became-bigger-than-ever/
And its return on equity – the all-important measure of bank profitability – is higher than it has ever been over the past two decades for which data is publicly available. Despite accounting for just 0.7% of the banking industry’s deposits, as of September 30, 2019, the latest period for which financial data is available, Citibank Pakistan accounts for 2.5% of its profits.
And Citibank was able to do this by going back to its roots: a global corporate and investment bank, with a presence across most economies around the world, a connecting financial institution that forms part of the backbone of the global financial system.
Citibank’s unique place in Pakistan
There is perhaps no foreign bank that captures the Pakistani imagination more than Citibank. Despite being much smaller than its current rival Standard Chartered, Citibank seems to have produced more financial leaders in Pakistan than any other financial institution. In both Corporate Pakistan – as well as the government – it means something special to be able to call oneself an “ex-Citibanker”, more so than any other financial institution.
The bank’s alumni in Pakistan include two former federal finance ministers – Shaukat Aziz and Shaukat Tarin – one of whom (Aziz) went on to become Prime Minister. They also include two provincial finance ministers – Murad Ali Shah of Sindh and Hashim Jawan Bakht of Punjab – one of whom (Shah) went on to become provincial chief minister. While Shah and Bakht are both from politically influential families, Aziz and Tarin’s rise in the federal government was in no small part due to the stature they gained as being highly successful global bankers who spent a significant portion of their careers at Citigroup.
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Standard Chartered, while a London-headquartered global bank, does not have a significant presence in investment banking. It is a strong corporate and commercial bank, but not an investment bank. In the world of capital markets and investment banking, Standard Chartered shows up nowhere in the global league tables (essentially, a ranking of financial institutions by total investment banking revenue).
Citi, on the other hand, is consistently in the top 5, earning $4.3 billion in investment banking revenue in 2019, according to data from Refinitiv, a financial data provider owned by Reuters.
What does any of this mean?
It means that while Standard Chartered can use its rupee-denominated local deposits to buy local, rupee-denominated bonds from the government of Pakistan, if Islamabad wants to issue dollar-denominated bonds to investors outside the country, the only bank with a local office it can talk to is Citi. (Technically, Deutsche Bank has also been a global investment banking powerhouse, and has offices in Pakistan, but its global investment bank has effectively self-immolated, so the less said about that, the better.)
And this is not just a theoretical capability: it is one that Citigroup has actively cultivated, having served as the government of Pakistan’s investment banker on nearly all global bond issuances, and several privatisation transactions as well.
https://www.brecorder.com/2019/10/25/537689/banking-sector-review-for-cy19/
On the liabilities side, deposit growth accelerated to 6.8 percent during January-June, 2019, up from 5.7 percent in the comparable period of last year. A good portion of these deposits was mobilised in June, 2019, leaving a very little time to deploy the funds in higher yielding earning assets. On the assets side, private sector advances witnessed a broad-based slowdown while public sector advances declined due to lower utilisation of commodity financing and retirement of energy sector advances. Resultantly, banks' borrowings declined by 12.7 percent and advances to deposit ratio dipped to 53.2 in June, 2019 compared to 55.8 in December, 2018. Overall, the risk profile of banking sector remained satisfactory and Capital Adequacy Ratio (CAR) at 16.1 percent was well above the local and international benchmark of 11.9 percent and 10.5 percent, respectively. Advances (net) decelerated to 1.9 percent compared to the rise of 12.3 percent in H1CY18 while investments also witnessed a slight increase of 0.7 percent in the first half of 2019 against a contraction of 3.6 percent in the same period of the preceding year.
So far as the second half of 2019 is concerned, the demand of private sector credit is expected to remain subdued due to stabilisation measures initiated by the government and subdued economic activity in the country. Projected slowdown in world economic activity, particularly in the US and the Euro area, is likely to influence exports and demand for advances. Banks may continue to remain risk-averse in their lending behaviour due mainly to a pick-up in NPLs and weakening repayment capacity of firms. The government's commitment to cease its borrowings from State Bank of Pakistan was expected to increase its reliance on commercial banks for financing needs. As such, investments of banks in gold-edged securities is expected to rise further. The rise in Minimum Saving Rate (MSR) is likely to induce depositors to opt for more saving and fixed deposits. Earnings of banking sector are also likely to remain decent in the second half of 2019 due to higher interest earnings and expected pick-up in banks' investment in government securities.
https://www.dawn.com/news/1723769
https://www.sbp.org.pk/press/2022/Pr-28-Nov-2022.pdf
Banking in Pakistan flourished during the first half of the calendar year 2022; both assets and income noted a strong increase while the balance sheet of banks expanded by 16 per cent over the same period of last year.
The State Bank issued a “mid-year performance review” (MYPR) of the banking sector for 2022 on Monday.
The review covers the performance and soundness of the banking sector for the January-June period (1HCY22).
It also covers the performance of financial markets and microfinance banks (MFBs), as well as the results of Systemic Risk Survey (SRS), which represents independent respondents’ views about key risks to financial stability.
The sustained economic activity during 1HCY22 supported the expansion of banking sector balance sheet by 16pc during 1HCY22, said the report.
A robust increase in the asset base was mainly driven by the flow of private sector advances and increases in investments, particularly government securities, said the report.
Investments rose by 22.5pc (Rs3.3 trillion) during 1HCY22. “These funds were almost entirely invested in government securities,” said the SBP report.
Investments in MTBs (market treasury bills) and PIBs (Pakistan Investment Bonds) observed a rise of Rs684 billion and Rs1.7tr, respectively.
Also, Ijara Sukuk attracted substantial bank funds of Rs838 billion in the first half of the present calendar year. Accordingly, the share of MTBs in banks’ total holding of federal government securities declined to 33.6pc by the end of June this year from 46.6pc a year ago. The share of PIBs shot up to 52.6pc from 46pc in June -2021.
“Increased share of long-term investments demonstrates the government’s strategy to improve its debt maturity profile,” said the SBP. The pace of growth in private sector advances during 1HCY22 was the highest in comparable periods of the previous three years. Improved manufacturing activity, as reflected in double-digit growth in the Large-Scale Manufacturing (LSM) index during 1HCY22, higher input prices and SBP’s refinance schemes augmented the overall flow of advances.
Individuals and the sugar sector availed a major chunk of financing, followed by the textile sector.
However, the monetary policy announced on Nov 24 had said that in line with the slowdown in economic activity, private sector credit continued to moderate, increasing only by Rs86.2 billion during Q1 FY23 (July 1 to Sept 30, 2022), compared to Rs226.4 billion during the same period last year.
This deceleration was mainly due to a significant decline in working capital loans to wholesale and retail trade services, as well as to the textile sector in the wake of lower domestic cotton output, and a slowdown in consumer finance, said the monetary policy.