KARACHI: Concentration of earnings in the banking sector grew in 2016 as the share of large banks in overall profitability increased to 77 per cent against 72pc a year ago.

The development comes in a year when pre-tax profitability of the banking sector declined 4.5pc against 33pc growth in the preceding year.

Meanwhile, the share of earnings by medium-size banks in the sector’s total profits decreased to 16pc from 19pc over the same period.

According to the financial stability report issued recently by the State Bank of Pakistan (SBP), the share of small banks in overall profitability reduced to 5pc in 2016 from 8pc in the preceding year.

“Very small banks” grew their share in total banks’ earnings to 2pc from 1pc a year ago, the report said.

It said cash recoveries in 2016 were at a five-year high. This coupled with an upgrade of non-performing loans (NPLs) and some restructuring and rescheduling activity has led to a marginal decline in the stock of NPLs, it said.

Categorising banks based on their ownership structure and type of business reveals that scheduled banks that are publically owned have the highest NPL ratio, or infection ratio, along with the lowest provision coverage, it said.

The sugar sector saw over 20pc increase in financing over the year, the report said, adding that it also registered some deterioration in its loan portfolio. Its NPLs doubled to reach Rs15.6 billion, said the SBP report.

Lending to the textile sector, which remained subdued during 2015, witnessed a recovery in 2016, as its loans grew 11.88pc. The sector continues to hold the highest share (18.18pc) in private-sector loans.

The SBP report said that despite its small share in total loans, the cement sector had the second highest NPL ratio during the last five years. However, this trend seems to be changing as the sector’s NPLs declined 7.77pc last year. This decline, coupled with 24.47pc growth in loans, decreased the NPL ratio of the sector by 3.31pc to 9.47pc.

The report said that more than 70pc of the outstanding loans have been provided to private-sector corporate entities. Although loans to corporate and agriculture sectors seem to be growing steadily, their flow to other segments has remained somewhat irregular, it said.

With an annual increase of 30.9pc, loans to the energy sector stood at Rs892.1bn at the end of 2016. Their share in overall loans was 14.81pc.

“However, the credit risk remains relatively low as only 60.24pc of these loans have been extended to the private sector and the NPL ratio is 3.5pc,” the report said.

It said seasonal commodity financing, with over 10pc share, remained the second biggest user of banking loans. The segment has negligible infected portfolio as its NPL ratio was below 1pc at the end of 2016.

NPLs in mortgage finance declined considerably during 2016, resulting in a dip of 7.07pc in the NPL ratio. However, its NPL ratio is still 17.7pc, highest within the consumer segment.

“In the near future, projects like CPEC present immense opportunities for the banks to expand their credit base. At the same time, these will test the banks’ lending practices, which have been underutilised for quite some time now,” said the SBP report.


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