Lowering debt:  Is Pakistan economy really improving?
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2015-09-28 16:16:10

Lowering debt:  Is Pakistan economy really improving?




The profit after tax of banking sector surged by 52 percent YoY on the back of both interest and non-interest income. Accordingly, Return on Assets increased to 2.7 percent in Jun-15 from 2.1 percent in Jun-14. Capital Adequacy Ratio remained strong at 17.2 percent well above the local requirement of 10 percent and international benchmark of 8 percent, said the Quarterly Performance Review of the Banking Sector for the quarter ending 30th June, 2015 released by State Bank of Pakistan here on Wednesday.
During the quarter, asset base of the banking sector grew by 5.7 percent (YoY 19.2 percent) compared to 3.4 percent in the corresponding period last year. Most of the increase in assets resulted from growth in public sector credit for matching the fiscal needs and financing commodity operations. The share of investments in total asset continued to increase due to growth in stock of government securities. According to the report, the asset quality observed some deterioration during Jun-15 as non-performing loans increased by 1.6 percent (YoY 5.8 percent) to PKR 630 billion. These figures would not be all that surprising if it were not for the fact that banks are relying increasingly on liquidity provided by the State Bank to carry on their highly profitable trade. In effect, the government is pumping money into the banks, then borrowing it back in the form of debt.In the process, the banks are raking in stupendous profits for doing very little other than shifting the funds from one place to another. This triangle creates a few winners, letting the government effectively bypass a limit placed by the IMF on direct borrowing from the State Bank and allowing banks a short cut to the hard road of raising deposits and taking risks with business enterprises.Lending to the private sector remained subdued in this period, rising by a meagre 1.8pc. The appetite of the bankers for government debt remains unabated, however, with total holdings rising to Rs5.66tr. Much of this is held in long-term bonds which carry higher yields, and have a very liquid secondary market, and are “expected to shield the profitability of the banking system” even if interest rates should decline further. These facts show that a decline in interest rates only helps the government lengthen the maturity profile of its domestic debt, while the banks continue to support the fiscal dysfunctions of the state with their deposits and liquidity support from the State Bank.





Tags:   pakistan ، Ishaq Dar ، IMF ، economy ، Tax ، Debt ،
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