KARACHI: Banks have significantly shifted their asset mix from loans to investments in the first half of 2009 as dampening economic activity raised doubt over repayment capacity of private borrowers, the State Bank of Pakistan (SBP) said on Wednesday.
Investment portfolio grew 30 per cent in the six months to June 30, 2009 and its share in total assets of banking system surged to 23.2pc from 19.2pc at the end of December 2008, it said in the Financial Stability Review 2008-09 released here.
“In sharp contrast to this, the loan portfolio saw a contraction of 0.2pc and its share in assets dipped to 52.2pc compared to 56.6pc at end of 2008,” it said.
While the financial system has continued to show resilience, the SBP said the exposure of banks to the government has increased tremendously mainly because of borrowing for settling the intra-corporate circular debt.
It feared that about Rs165 billion of banks’ investment in TFCs, which were issued to settle the circular debt, might be held up. Growing appetite for cash by public sector enterprises contributed decline in credit to private sector last year, it said.
The SBP says bank loans are concentrating on a few industries, something which needs to be monitored closely as it could be potential source of systematic risk.
The loans have piled up in textile and power sectors, it said.
The country’s financial sector has shown strong resilience to a challenging macroeconomic environment and global developments, says State Bank’s Financial Stability Review 2008-09, which was released on Wednesday.
It said size of financial sector, which includes banks, non-bank financial institutions (NBFIs), microfinance banks, national savings, insurance sector and the financial markets increased to Rs8.2 trillion by end-June 2009 from Rs7.1 trillion at end Dec 2007 in terms of assets.
Growth in deposits did slowdown to 9.4pc last year after growing at average rate of 18.1pc for past 5 years, which is a reflection of slowdown in economy, preference for hard currency due to environment of uncertainty, and competition from the National Savings Schemes (NSS) offering a higher rate of return than bank deposits.
It said heightened concerns over credit risk surfaced in first quarter 2008, and became pervasive as year progressed as non-performing loans (NPLs) rose 68.4pc to Rs359.3 billion by end of the year, the biggest increase in a single year since 1997.
“While aggressive credit expansion in the last few years played its role in this visible deterioration of asset quality, the widespread rise in NPLs is seen to be a direct consequence of macroeconomic instability, and largely a cyclical rather than structural factor,” it said and added that this assertion is supported by the slowdown in growth of incremental NPLs in first half of 2009 to Rs397.9bn, as process of economic recovery picks up pace.
source - http://www.thenews.com.pk/print1.asp?id=216059
Investment portfolio grew 30 per cent in the six months to June 30, 2009 and its share in total assets of banking system surged to 23.2pc from 19.2pc at the end of December 2008, it said in the Financial Stability Review 2008-09 released here.
“In sharp contrast to this, the loan portfolio saw a contraction of 0.2pc and its share in assets dipped to 52.2pc compared to 56.6pc at end of 2008,” it said.
While the financial system has continued to show resilience, the SBP said the exposure of banks to the government has increased tremendously mainly because of borrowing for settling the intra-corporate circular debt.
It feared that about Rs165 billion of banks’ investment in TFCs, which were issued to settle the circular debt, might be held up. Growing appetite for cash by public sector enterprises contributed decline in credit to private sector last year, it said.
The SBP says bank loans are concentrating on a few industries, something which needs to be monitored closely as it could be potential source of systematic risk.
The loans have piled up in textile and power sectors, it said.
The country’s financial sector has shown strong resilience to a challenging macroeconomic environment and global developments, says State Bank’s Financial Stability Review 2008-09, which was released on Wednesday.
It said size of financial sector, which includes banks, non-bank financial institutions (NBFIs), microfinance banks, national savings, insurance sector and the financial markets increased to Rs8.2 trillion by end-June 2009 from Rs7.1 trillion at end Dec 2007 in terms of assets.
Growth in deposits did slowdown to 9.4pc last year after growing at average rate of 18.1pc for past 5 years, which is a reflection of slowdown in economy, preference for hard currency due to environment of uncertainty, and competition from the National Savings Schemes (NSS) offering a higher rate of return than bank deposits.
It said heightened concerns over credit risk surfaced in first quarter 2008, and became pervasive as year progressed as non-performing loans (NPLs) rose 68.4pc to Rs359.3 billion by end of the year, the biggest increase in a single year since 1997.
“While aggressive credit expansion in the last few years played its role in this visible deterioration of asset quality, the widespread rise in NPLs is seen to be a direct consequence of macroeconomic instability, and largely a cyclical rather than structural factor,” it said and added that this assertion is supported by the slowdown in growth of incremental NPLs in first half of 2009 to Rs397.9bn, as process of economic recovery picks up pace.
source - http://www.thenews.com.pk/print1.asp?id=216059
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