KARACHI: Overall performance of the banking sector during the last couple of years remained quite impressive, according to Economic Survey of Pakistan for fiscal year 2015-16.
A number of positive developments, such as better energy supply and rise in manufacturing activity, improved security conditions, macroeconomic stability, rise in investor confidence, low inflation and commodity prices, particularly, oil prices, besides enabling regulatory environment, have been instrumental in making banking sector grow steadily.
The momentum continued in the fiscal year 2016 with asset base, which registered growth of 18.2 per cent and reached Rs14.3 trillion by the end of March 2016 as compared to Rs12.1tr as at the end of March 2015.
Besides investment, credit to private sector has also started to accelerate. Advances grew with a significant rate of 8.3pc in 2015. Growth in advances is concentrated to private sector credit which shows a decent growth of 7.9pc during 2015 as compared to last year.
Gradual increase in earning assets translated into profits before tax of Rs82bn during the first quarter of calendar year 2016 (Rs80bn during March 2015).
Further, alignment of regulatory capital requirements in Pakistan with best international practices, coupled with high profitability, helped achieve strong solvency.
Capital Adequacy Ratio (CAR) of 16.3pc at the end of March 2016 was much stronger and higher than the minimum required level of 10.25pc.
Similarly, asset quality also improved and NPLs to loans ratio came down from 12.8pc in March 2015 to 11.7pc in March 2016.
Also gross NPLs ratio reduced from 12.3pc in 2014 to 11.4pc in calendar year 2015. Net NPLs ratio reduced from 2.8pc to 2.1pc in March 2016 on year-on-year basis.
Asset quality also showed improvement: infection ratio declined from 14.8pc as of June 2013 to 11.7pc as of March 2016.
As far as financial development is concerned, a well structured financial system had a positive and significant impact on economic development and ensured efficient utilisation of financial resources, accelerated saving and investment rate and helped in poverty and inequality reduction by increasing the ability of individuals to access basic services, like health and education.
Financial depth can be measured by different proxies, but M2-to-GDP ratio is considered as most comprehensive and commonly used for capturing the overall size of the financial sector.
Increasing M2/GDP ratio primarily indicates the well-structured and developed financial sector. In case of Pakistan, this ratio witnessed positive and increasing trend since fiscal year 2011 due to several regulatory reforms and policy initiatives adopted by the State Bank of Pakistan to ensure a sound and robust financial sector.
Monetary assets, which were 38.9pc of GDP in fiscal year 2009, increased to 41pc in fiscal year 2015.
During the period between July-May in fiscal year 2016, M2/GDP ratio increased to 40.8pc from 38.8pc . However, the ratio is expected to increase further in future on account of ongoing financial reforms in financial sector with an aim to strengthen the financial depth.