KARACHI: Banking industry’s pre-tax profit surged by 52 per cent to an all-time high of Rs247 billion in 2014 thanks to their huge investments in government securities, the State Bank said on Thursday.
In its quarterly report ‘Performance of Banking Industry’ for Oct-Dec 2014, the SBP said, “Banks holding of government securities surged to Rs4.8 trillion as of end-December, constituting more than 90pc share in total investments and 40pc share in total assets.”
Due to expected cut in policy rate, declining inflation and improved balance of payments position, banks mostly invested in Pakistan Investment Bonds (PIBs) and partly in Market Treasury Bills (MTBs).
PIBs’ share in banks’ investment in government securities rose sharply reaching 56.5pc by Dec 31, 2014 compared to 19.3pc as of Dec 31, 2013, said the report.
Most of these investments were concentrated in three-year PIBs and were kept in ‘available-for-sale’ category to effectively manage the market liquidity, it added.
The share of investments continued to increase in total assets due to growing stock of government securities with a quarter-on-quarter rise of 13.8pc (25pc year-on-year).
“Despite the recent reduction in policy rate, banking profitability is expected to remain intact due to relatively higher return on huge stock of longer-tenor PIBs built during 2014,” said the report.
During Oct-Dec 2014, assets of the banking sector grew by 8.8pc quarter-on-quarter and 15.4pc year-on-year on the back of seasonal pick-up in advances and heavy government borrowing from commercial banks.
Profitability of the banking sector surged by 49pc year-on-year, while Capital Adequacy Ratio increased to 17.1pc from 15.5pc.
“The asset base observed healthy increase due to seasonal pick-up in advances and increase in government borrowing from commercial banks supported by a modest increase in customer deposits. Asset quality slightly improved, while growth in equity led to a considerable decrease in capital impairment ratio,” said the report.
A number of factors that contributed to the sector’s growth included: high mark-up income with major contribution by return on investments in government bonds (grew by 24.7pc year-on-year) followed by some improvement in return on advances (10.3pc); significantly lower provisioning charges (-37pc); higher non-interest income (19.5pc) with improvement in fee based income and dealing in foreign exchange; and substantial increase in gain on sale of securities (44pc).