KARACHI: The banking industry grew by 16.1 per cent during FY16 despite experiencing some pressure on its profits due to declining interest rates and spreads.
However, the outlook remained stable with high solvency levels, a strong capital base, contained non-performing loans and improving risk management systems, said the performance review of State Bank for FY16 issued on Monday.
The doubling of private sector credit was the most encouraging development during the year which contributed significantly in achieving 4.7pc growth in real GDP, said the report.
This was despite a major setback in the agriculture sector due to a 27pc decline in the cotton crop.
The sharp surge in private sector credit is a reflection of increasing trust and confidence of the business community in the overall improvement in the investment climate of the country, the review noted.
The year also witnessed continued double digit growth of Islamic banking with 16.8pc and 14.1pc growth in its assets and deposits, respectively.
As of end June 2016, its asset base grew to Rs1,745 billion, representing 11.4pc of the banking system assets, whereas deposits at Rs 1,461bn were equivalent to 13.2pc of the banking industry’s deposit base.
The outreach of the Islamic banking industry has also expanded considerably with its branch network increasing to 2,146 branches in 98 districts across the country. This is well above the target of 2,000 branches set in the second Strategic Plan 2014-18 of Islamic Banking Industry.
The long awaited deposit insurance scheme will be launched in the near future after the National Assembly and the Senate approved the proposed Deposit Protection Corporation Act, 2015 during the year.
The report said the introduction of Low Risk ‘Asaan Account’ with simplified due diligence requirements brought 1.13 million more people in the banking system. Branchless banking has been another key instrument for increasing financial inclusion.
The industry added about one million mobile wallets during the year thus increasing the total mobile wallets to 14.6m spread across the country.
The expansion of agriculture and rural finance has also been an important component of the financial inclusion strategy. Despite negative growth in the agricultural sector during the year, agri-financing continued its growth momentum, increasing by 16pc to Rs599bn.
Encouragingly, the agri-finance sector added over 200,000 new borrowers during the year, thus increasing the total outreach of the sector to 2.4m active borrowers from 2.2m in the previous year.
Some encouraging activity has been seen in the housing finance sector, which grew by almost 17pc during the year with all time high disbursements of Rs 20.13bn.
This could be attributed to the low interest rate environment prevailing in the country.
During the year, the SBP also succeeded in getting the Financial Institutions Recovery Ordinance, 2001 amended to provide legal cover to banks to take legal action against housing finance defaulters. This has addressed one of the key concerns of banks and would thus gave a boost to the housing finance market, said the report.