KARACHI - The banking sector in the country has performed reasonably well as asset base of the banking sector has expanded by 4.7 percent during 1st half of fiscal year 2018-19.

Encouragingly, advances to the private sector have been the key contributor in the asset growth with sugar, energy and cement sectors along with individuals (i.e. sole proprietorships) being the key borrowers. Deposits have observed slight deceleration but remained the mainstay of funds for the banks, said a report issued by State Bank of Pakistan (SBP) here on Thursday.

State Bank has provided a comprehensive coverage of the performance and soundness of the banking sector and highlighted the key issues facing the financial sector.

The overall risk profile of the banking sector has improved in the above period, mainly due to strengthening capital adequacy and improving asset quality. Capital Adequacy Ratio has further strengthened to 15.9 percent; well above the minimum regulatory required level of 11.275 percent.

Non-Performing Loans (NPLS) to total loans ratio have receded to 7.9 percent, the lowest level since the first half of 2018-19. Banks' after-tax earnings (year to date), however, have declined by 14.7 percent due to reduced non-interest income, one-off provision expenses, and higher administrative cost. The report also highlights expectations about macro-financial conditions in the second half of 2018-19 financial year.

The results of the second wave of SBP’s Systemic Risk Survey suggest that external sector pressures, fiscal sector vulnerabilities, growing domestic inflation and volatile commodity markets could potentially impact financial stability over the coming six months.