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.

Karachi Financial District
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.


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


Riaz Haq said…
#Pakistan saw 45% fewer #terror attacks & 38% fewer deaths this year, says ‘Global Terrorism Index (GTI) 2016’.

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.
Riaz Haq said…
Electronic banking in #Pakistan up 16% in 2016 from 2015, State Bank of Pakistan via @techjuicepk

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.
Riaz Haq said…
#Pakistan #banks show strong growth. #Deposits up 20%, #loans rise 17% in 2016.

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.

Riaz Haq said…
#Mobile banking helps #Pakistan’s poor & women by social & financial inclusion. #BISP

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.”
Riaz Haq said…
#Investment inflows spur #Pakistan's corporate #sukuk (Islamic bond) market via @Reuters

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.
Riaz Haq said…
#Sharia compliant #Islamic #banking available 2,322 branches in 112 districts across #Pakistan

The growth and expansion of the Islamic banking is moving fast. This is the view of Islamic scholars who spoke at a seminar arranged by the Securities & Exchange Commission of Pakistan (SECP), the official regulator of Islamic banking in the country.

At the same time, the World Bank and the Islamic Development Bank, in their first global review of the fast-track movement of the Islamic banking system, have reported that Pakistan is among those countries in which the government and the central bank are "not taking Islamic banking lightly".

The SECP reports that "there is an even stronger growth of Islamic assets in the non-banking financial institutions. Their market share is now approaching 33 per cent, - up from 14 per cent in 2012".

What's behind this growth? One, the persistently strong demand from customers of the country of 200 million, largely Muslims, and two, the fact that the State Bank of Pakistan (SBP), the central bank, the government of Pakistan and the SECP "created the enabling regulations environment for this fast track growth".

These were the views made at a seminar held at the SECP in Islamabad. Hayat says "the priority and responsibility of the regulator like SECP is to develop [an] Islamic capital market."

The SECP on its part, recently had two sessions for consultation with banking sector participants to help investment in issuing sukuk and real estate investment trusts (Reits).

As of now, the SECP is analysing the proposals from the financial and banking sector to formulate necessary amendments into the regulations to further reduce the cost for such investment. The SECP is also considering the banking sector and investors' proposals regarding the existing tax problems relating to sukuk and Reits and to overcome such problems.


The bankers and Islamic scholars also debated at the SECP seminar as to which model is to be adopted, because in 2001 policy makers had decided to allow both Islamic and conventional banking in Pakistan. This policy continues as of now.

As at now, 21 banking institutions are providing Islamic banking services and products, through their 2,322 branches in 112 districts across Pakistan. Abbasi said: "The SBP has a holistic approach for the promotion of Islamic banking, and is providing the enabling policy environment for Shariah governance, risk management and capacity building." The Islamic Finance News, in 2015, adjudged the SBP as the "Best Central Bank for Promoting Islamic Finance".

Another Islamic scholar, Dr Shafiullah Jan, says: "The economic substance in Islamic banking may seem to be the same as that of the conventional banking, but the underling process is different."

Dr Jan said along with the growth of the Islamic banking industry, more attention should be given to ask as to why this industry was created, and whether it is delivering along the Islamic vision of development that it is associated with.

Now let us go back to the first-ever Islamic banking report issued last week by the World Bank and Islamic Development Bank. It says: "The fact that a strategic roadmap on a national level is in place in jurisdictions. These jurisdictions include Indonesia, Malaysia and Pakistan, [and] shows that the governments in those countries are no longer taking Islamic financing lightly."

It says, "Indonesia and Pakistan are, perhaps, the strongest proponents of incorporating financial inclusion as a policy objective."

As the banking sector expands as a result of financial inclusion, Islamic banking is projected to expand more.
Riaz Haq said…
#Pakistan #bank profits soar with rising deposits and increased lending

Gains on bigger volumes, enlarging transactions and growing business rising
Commercial bank profits in Pakistan are going up on the back of rising deposits and growing lending.

The profits on bigger volumes, enlarging transactions and growing business are rising. This is so even though the spread is also down to around five per cent from its sunny days of seven per cent. The interest rate is down to 5.75 per cent.

Overall deposits of all commercial banks stood at Rs10,726.66 billion on March 3 according to the latest report by the State Bank of Pakistan (SBP), the central bank. Deposits and other accounts of specialised banks stood at Rs71.07 billion. Total assets of banks were at Rs14,941.67 billion.

Lending by banks rose, too, the SBP said. The gross advances of all scheduled banks stood at Rs5,502.81 billion in the first quarter of fiscal year 2017. Lending by banks in the same period was Rs4,835.19 billion, which was 13.8 per cent higher than the same period of fiscal year 2016.

Borrowing by all scheduled banks rose 2.8 per cent to Rs2,025.84 billion in fiscal year 2017, compared to Rs1,990.44 billion in fiscal year 2016.

The central bank reports a much-awaited rise to Rs7,525.10 billion in investments by banks in fiscal year 2017, up from Rs7,039.33 billion in the past year. It shows a rise of 6.9 per cent.

The approved foreign exchange reserves with banks were Rs996.45 billion in March, compared to Rs923.4 billion, a year ago, which is higher by 7.9 per cent.

All these statistics of the banking sector confirm a definite growth in all these sectors.

The banks' operations and profits are projected to rise, though at a slower pace than the last few years. But the economy is moving up. Bankers are not likely to gain seven per cent-plus spreads, as in the past several years when this rate was the highest in the world. Spreads and profits are low because the SBP-set soft monetary policy had reduced the interest to as low as 5.75 per cent - the lowest in the last 43 years. Fiscal year 2016 saw a reduction of 2.2 per cent in the mark-up income of banks. The average spread, as a consequence, is now around five per cent.

But all said and done, the economy is moving up at a good pace as stated by Finance Minister Ishaq Dar who insists: "We project the GDP growth of five per cent-plus even if it does not turn out to be the hoped-for 5.7 per cent." It will provide reasonably good profits to all sectors of the economy.

The Pakistan stock market index PSX-100, for instance, within a short span of time, has shot up and crossed 50,000 points in recent weeks. It faced a small downturn, and the PSX these days is moving in the range of 48,697.65 on March 20 - the opening day the week, which moved to 49,016.78 later in the week.

During three-and-a-half years of the government of pro-business Prime Minister Nawaz Sharif the index has moved from around 35,000 to the current level - nearly a whopping one-third up.

The improving health of the Pakistani economy is also testified by international rating agencies and global stock market operators who have described the Pakistan Stock Exchange as "one of the top 10 emerging markets worldwide".

Besides other big foreign businessmen and financiers flocking to buy PSX shares, there is a growing interest of the investors from the UAE and China - part of which is related to the ongoing implementation of the $56 billion China-Pakistan Economic Corridor (CPEC). The CPEC-related investment and other FDI indicators are leading up to larger banking transactions and growing bank profits. This is happening despite one or the other quarter of the financial year coming out with somewhat smaller bank profits.
Riaz Haq said…
Banks’ growing romance with car industry

Car financing in particular and consumer loans in general saw signs of resurging after a gap of several years for the first time in 2013-14 on the back of economic growth.

In July-September this year, banks’ auto loans almost doubled to Rs11.1 billion from Rs5.7bn in July-September last year.

This is just a continuation of the huge 60 per cent rise recorded in auto loans last fiscal year ending June, according to the latest data of the State Bank of Pakistan (SBP). In 2016-17, banks’ auto financing totalled Rs70.5bn against that of Rs44bn in the preceding fiscal year.

According to the Pakistan Automotive Manufacturers Association, auto sales also recorded a matching growth of 60pc, as 44,372 vehicles were sold during July-September 2017 against 27,630 in the same period of 2016.

Senior bankers say an increase in auto loans (and also in overall consumer finance) in the first quarter of the fiscal year is always good as during this period net credit to private sector businesses remains negative due to usual heavy credit retirement.

‘The acceleration in car loans is demand-driven and bulk of the demand is coming from people employing vehicles in Uber and Careem e-hailing services,’ says the head of consumer banking

During the first quarter of this year, “it’s the volume of incremental auto loans (Rs11.1bn) that is noteworthy”, says the head of a local bank.

Between July and September this year, net stock of loans to private sector businesses saw a decline of Rs2bn, latest SBP stats show.

“The acceleration in car loans is demand-driven and bulk of the demand is coming from people employing vehicles in Uber and Careem e-hailing services,” says the head of consumer banking at a local bank.

Increasing car deliveries to people associated with Uber and Careem are helping the creation of full-time jobs for some and part-time opportunities for others. That is good for the economy.

What is bad, though, is that in their quest for meeting a demand rush, car assemblers are delaying deliveries.

Or this is what bankers tell their customers after sanctioning auto loans at lightning speed and then failing in ensuring vehicle delivery from designated dealers for weeks, and in some cases for months. Failure in timely delivery, regardless of who is responsible, reflects poorly on the auto industry’s reputation.

As auto financing fever runs high, banks, in competitive frenzy, are over-committing to car loan seekers. After approving auto loans, many bank branches debit down-payments from customers’ accounts and also make these accounts operational, thus requiring borrowers to start paying loan instalments. But they leave the customers at the mercy of car dealers instead of ensuring car deliveries within the promised timeline.
Riaz Haq said…
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

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.
Riaz Haq said…
Bahrain’s Ithmaar Bank plans aggressive expansion in Pakistan
Bahrain-based lender to add more than 100 branches in Pakistan this year through its subsidiary Faysal Bank

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.
Riaz Haq said…
Accelerating economy to support Pakistan’s banking sector growth
Modest capital and large holdings of government bonds remain risk factors

Published: 14:06 March 11, 2018 Gulf News
Babu Das Augustine, Banking Editor

The outlook for banks in Pakistan is stable over the next 12-18 months driven by an accelerating economy and stable funding, according to rating agency Moody’s.

“Our stable outlook for Pakistan’s banking system is driven by an accelerating economy, boosted by domestic demand and China-funded infrastructure projects. Economic growth will stimulate lending and support a slight improvement in asset quality. Despite margin pressure, we expect profitability to remain flat. Stable funding from customer deposits and high liquidity are further strengths,” said Constantinos Kypreos, a Moody’s Senior Vice President.
Pakistan’s real GDP growth is projected at 5.5 per cent and 5.6 per cent in the fiscal years ending June 2018 and June 2019. Infrastructure investment and solid domestic demand will be the main drivers of economic growth and will fuel lending growth of 12 per cent to 15 per cent for 2018. The economy, however, remains susceptible to political instability and a deterioration in domestic security.
Analysts expect problem loans (NPLs at 9.2 per cent of gross loans as of September 2017) to decline in the current supportive macro environment, helped by the banks’ diversified loan portfolios and low corporate debt. Asset risk remains high, however, due to weaknesses in the legal framework, inefficient foreclosure processes and scant information for assessing borrower creditworthiness.


With regard to asset risk, analysts expect asset quality to improve in the current supportive macroeconomic environment, helped by the banks’ diversified loan portfolios and low corporate debt.
Moody’s says that the banks’ profitability will remain flat amid margin compression. However, profits will be supported by strong lending growth, a focus on low-cost current accounts and moderate provisioning needs. Interest margins should level off towards the end of 2018, once pressure from the reinvesting of legacy high-yielding Pakistan investment bonds reduces, as the remaining of these mature.
Credit growth to pick up pace
Credit growth in Pakistan is expected to gain momentum in 2018-19 driven by robust growth in both private and public sector credit demand, according to rating agency Moody’s.
“We expect lending to the private sector to grow between 12 to 15 per cent during 2018, a result of the improved economic conditions. This is despite a widening fiscal deficit (5.8 per cent of GDP for 2017), which the banks will continue to partly finance,” said Constantinos Kypreos, a Moody’s Senior Vice President.
Loan growth and deepening financial penetration is expected to be supported by state initiatives, such as branchless banking. Regulations amended to allow customers to open bank accounts through biometric devices at agent locations, as well as through mobile phones, to facilitate remittances are expected to boost growth on both assets and liabilities. A central bank-initiated policy targets a 17 per cent share of private-sector credit for SME financing compared to 9 per cent at year-end 2016. The policy initiative has set minimum portfolio targets for banks; introduced risk coverage and refinancing schemes for SMEs; established g a registry to allow SME borrowers to obtain credit using pledged assets as collateral; and prudential incentives such as a relaxation of general provisioning and capital requirements.

Riaz Haq said…
Solid performance by Pakistan’s banking sector in 2017, State Bank reports

Pakistan’s banking sector remained sound and stable in 2017, with total assets growing to Rs18.34 trillion ($159.5 billion) from Rs15.83 trillion the previous year.
However, in its latest Quarterly Performance Review of the Banking Sector — covering the final quarter of 2017 and published on March 21 — the State Bank of Pakistan (SBP) revealed the number of loss-making banks rose to five, from three in 2016.
“Two additional loss-making banks posted marginal profits in 2016 and they belong to the lowest quartile of the banking sector in terms of asset base,” said SBP. “Rising cost of operations has compelled these banks to incur losses in 2017.”
Equity increased by Rs36.7 billion (2.7 percent) during the quarter, compared with Rs28.4 billion (2.1 percent) during the same period in 2016.
“Banks have added 305 branches and 416 ATMs during the fourth quarter of calendar year 2017, while 304 additional branches have been linked to the online network,” SBP noted. “There has also been a rise in point of sales machines and plastic cards.”
In terms of assets, the sector performed as per trend during the quarter. They increased by 4.5 percent, compared with 4.6 percent quarterly growth recorded a year earlier. About 70 percent of the growth in total assets came from net advances and net investments.
On a year-on-year basis, assets grew by 15.9 percent in 2017 compared with 11.9 percent the previous year. Net advances grew by 18.4 percent, and net investments by 16.2 percent.
As for liabilities, growth in deposits was subpar, the central bank said. During the quarter, banks recorded a 3.2 percent increase in deposits, and an annual increase of 10.3 percent. These compare with 2016 figures of 6.4 percent in the fourth quarter, and 13.6 percent for the year. As a result, borrowing by banks substantially increased to Rs280.1 billion, compared with retirement of Rs69.4 billion during the same period last year.
Islamic banking institutions, which represent 12.4 percent of banking-sector assets, contributed 24.1 percent (Rs 188.6 billion) of asset growth during the quarter, compared with the same period a year earlier. Year on year, they accounted for 16.7 percent (Rs 418.8 billion) of total asset growth.
The seasonal pick up in private-sector advances stands at 7.3 percent for the quarter, down from 10.6 percent in the final quarter of 2016.
“This is on account of a decline in advances to the chemical and pharmaceuticals sector, and lower advances flows to sugar and energy sectors,” SBP noted. “Within the chemical and pharmaceuticals sector, fertilizer companies have retired their advances during [the quarter]. Higher cash flows resulting from release of the stocks accumulated since 2016, and lower fertilizer production in 2017 due to higher liquefied natural gas prices and its limited availability have led to the decline in advances by fertilizers.”
Riaz Haq said…
#Pakistan #FinancialServices #profits surged 48% to Rs. 45.5 billion in the third quarter (July-September 2019) over the same quarter of 2018. Cumulatively in the nine months (January-September 2019), #banking profit grew 20% to Rs127.7 billion. #economy


On average, banks charged 13.84% from borrowers and paid 8.71% to depositors – resulting in a spread of 5.13% in December 2019.


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.


Riaz Haq said…
In #Pakistan, foreign firms’ #profit repatriation rises 18% to $743.2m as #foreign #banks book higher profits against hefty foreign #investment of $2.56 billion in short-term sovereign debt securities (T-bills) of Pakistan since July 2019. #economy

“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.
Riaz Haq said…
#Moodys: #Remittance growth good for #Pakistani #banks. Bullish on remittances to Pakistan by #tech-driven ease in funds transfer, lower wire cost, hints at inability of Pakistani banking sector to move money without the help of expensive wire services.

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.
Riaz Haq said…
#Citibank #Pakistan scaled back, and became bigger than ever. Just 7 years after ending its retail operations in the country, the #global #bank is more #profitable than at any point in its history in Pakistan… and remains a breeding ground for top talent

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.


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.
Riaz Haq said…
According to the Mid-Year Performance Review (MPR) of the banking sector released by the State Bank of Pakistan on 21st October, 2019, banking sector maintained its growth trajectory during the first half of 2019 on account of decent increase in deposits, thanks to an amnesty scheme announced by the government.

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.
Riaz Haq said…
Banks’ income, assets flourish in 1HCY22

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.

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