Pakistan banks’ record highest growth of 15% after three years

KARACHI: The Pakistani banks’ total advances have grown 15 per cent on a year -on-year basis to reach Rs9.3 trillion at the end of September, the State Bank of Pakistan reported on Monday.

It is the highest growth witnessed after three years, it said.

Growth in advances remained stagnant during the last two years due to the economic slowdown and banks reluctance to increase their share in lending.

The private sector credit also grew 15 per cent on a year-on-year basis to Rs7.8 trillion as of September 30, 2021.

“Advances are also up 4 per cent on a month-on-month basis. We believe that improvement in LSM [large-scale manufacturing] and disbursements against Temporary Economic Relief (TERF), which is a concessional financing scheme, has led to higher growth in advances,” Umair Naseer at Topline Research said.

Additional taxation by the government on banks with low ADR [Advance-to-Deposit ratio] may also have led [the] banks to increase their lending. [The] ADR ratio of the sector still remains on the lower side at 47 per cent in September 2021 against 48 per cent in September 2020, the central bank said.

Investments of the sector continued to post strong growth, as they increased 27 per cent on a year-on-year basis to reach Rs14.1 trillion as of September 30, 2021.

Investment-to-Deposit ratio (IDR) of the sector increased to 71 per cent in September 2021 against 66 per cent in September 2020.

Provisions against advances went up 14 per cent on a year-on-year basis and one per cent on a month-on-month basis to Rs658 billion. This is better than the pace at which the advances have grown both on a year-on-year and month-on-month basis, which indicates that the pressure from the non-performing loans remain low.

On the liability side, the deposits of the sector grew 17 per cent on a year-on-year basis to Rs19.8 trillion at the end of September, slightly above the last five year’s average growth of 16 per cent.

Broad Money (M2) growth also clocked-in at 15 per cent on a year-on-year basis, primarily driven by growth in borrowing from scheduled banks, which went up 16 per cent on a year-on-year basis.

The currency in circulation increased 15 per cent on the year-on-year basis during the same period.

The currency in circulation as a percentage of M2 clocked-in at 29 per cent, above the previous five year’s average of 27 per cent, likely due to low interest rates and an effort to stay out of the sight of the tax authorities.

The Pakistan banks are expected to post earnings growth of 20 per cent in 2022 led by strong balance-sheet growth and expected margin improvement, owing to a likely increase in the policy rate, going forward.

“We expect the advance growth to average 12 per cent to 15 per cent from 2022/24. We maintain our overweight stance on Pakistan banks with Habib Bank Limited (HBL), United Bank Limited (UBL), Meezan Bank Limited (MEBL) and Bank Al Habib Limited (BAHL) our top picks.