KARACHI: The State Bank of Pakistan’s profit fell drastically by 43 percent during the last fiscal year 2015-16 (FY16), mainly due to massive reduction in the discount and other operating incomes.

According to State Bank of Pakistan’s (SBP) Annual Performance Review for the year 2015-16 (FY16), issued Monday, the SBP earned a net profit of Rs 229.535 billion during FY16 compared to Rs 401.751 billion in FY15, showing a decline of 42.9 percent or Rs 172.398 billion.

After measuring loss on re-measurement of staff retirement defined benefits plans, the SBP’s profit before appropriations stood at Rs 214.026 billion at the end of FY16 compared to Rs 397.69 billion in FY15, depicting a decline of Rs 183.664 billion.

The discount income registered a steep decline of over Rs 90.367 billion, which is attributed to reduced quantum of government borrowings from the Bank coupled with 75 basis points (bps) reduction in the policy rate.

The discount income earned on the government borrowings from the Bank through Market Related Treasury Bills (MRTBs) has been the major source of income of the State Bank. Besides this, the interest/markup earned on short-term lending to banks under reverse repo arrangements, foreign currency investments and placements, and loans to banks under export finance and related schemes of the central bank, also contribute significantly to the SBP profits.

According to annual review, the average government borrowings from the Bank for FY16 and average yields on MRTBs during the year were Rs 2,216 billion and 5.89 to 6.24 percent, respectively as compared to the borrowings and MRTBs yields of Rs 2,542 billion and 6.64 to 8.39 percent in FY15. However, the decline is the discount income partly offset by increase of Rs 42.682 billion in income on reverse repo transactions.

In addition, the other operating income of SBP witnessed a massive decline of Rs 100.587 billion during the year as it decreased to Rs 2.756 billion in FY16 against Rs 103.343 billion in FY15. The decline was due to the onetime gain of Rs 103.121 billion on the sale of ABL and HBL shares in FY15 and the decline in penalties’ income by Rs 2.438 billion.

Similarly, the interest earned on Export Finance Facility (EFF) and other related refinance facilities declined to Rs 9.164 billion in FY16 from Rs 16.716 billion last year primarily due to reduction in the interest/mark-up rates.

The significant reduction in discount earned on government borrowings and interest mark-up income on loans to banks under various schemes was partly off-set by Rs 43 billion increase in interest earned on lending to banks under reverse repo arrangements. The steep rise in the interest earned on the reverse repo based lending to banks has been attributed to more than 180 percent rise in average balance under the facility during the year; the average rate on the facility though reduced to 6.18 percent from 8.77 percent last year.

The increase in interest income on foreign currency assets has largely been attributed to increase in reserves, improvement in interest rate environment in the US market and modest depreciation of the PKR against the USD.

The Bank earns commission income through management of public debt, Market Treasury Bills, prize bonds, National Saving Schemes and government securities as well as issuing drafts and payment orders. The commission income increased by 17 percent to Rs 1.9 billion at the end of the last fiscal year as compared with the previous year.

The bank earned net exchange gain of Rs 25.676 billion during FY16 against exchange gain of Rs 36.418 billion during FY15, registering a decline of 29 percent. The PKR depreciated by Rs 3.056 per USD during the year resulting in an exchange gain of Rs 38.323 billion on FCY assets as compared to the gain of Rs 12.837 billion earned last year.

The PKR depreciated against the SDR by Rs 3.071 that caused an exchange loss of Rs 12.596 billion on the SDR denominated liabilities; the PKR had appreciated by Rs 9.36 in FY15 and thus an exchange gain of Rs 23.524 billion.

The SBP holds equity investment in banks and financial institutions under section 17 6(A) of SBP Act 1956 and dividends earned on these investments is also one of the sources of its income. The decline of Rs 3.203 billion in the dividend income as compared to the previous year has been attributed to the divestment of ABL and HBL shares partly offset by increase in the dividend income from NBP.

The total expenditure during the year (including reversal of provisions against impaired assets) was Rs 40.855 billion against Rs 38.674 billion in FY15, thus registering an increase of 5.6 percent over the previous year’s expenditure.

During FY16, the banknotes printing charges increased by 16 percent to Rs 7.731 billion from Rs 6.690 billion in FY15. The increase has partly been attributed to increase in quantity (Rs 815 million) and partly to price escalation (Rs 225 million).

The agency commission paid to NBP and BOP increased by 24 percent during the year to Rs 8.969 billion from Rs 7.243 billion in FY15.

The general administrative expenses rose by Rs 379 million to Rs 24.25 billion at the end of FY16 due to increase in repairs and maintenance, training, depreciation and fund managers’ expense partly offset by decrease in retirement benefits.

During the year, the balance-sheet footing of the Bank increased from Rs 5,234 billion to Rs 6,450 billion, registering an increase of 23 percent. The causative factors for the increase are reverse repo balances, foreign currency accounts and investments balances and the value of the gold reserves held by the Bank.

The reverse repo balance increased due to significantly large liquidity injections by the SBP in the interbank market. The balance under this head increased to Rs 1,534 billion at the close of the year from Rs 663 billion last year on the same date. The increase of Rs 534 billion in the balances of foreign currency accounts and investments was mainly due to increase in the foreign currency reserves of the country.

The Rs 40 billion increase in the value of the gold reserves held by the Bank was due to spike in the gold rate in the London Bullion Market.

 

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