Financial sector assets grow by 27 percent in 2023: SBP report – Business

KARACHI: Financial sector assets rose 27 per cent in 2023, mainly driven by the banking sector’s investment in safe, high-yielding government securities.

“Although volatility in financial markets remained high, the financial sector, particularly the banking sector, remained resilient and grew by 29.5 per cent during the review period,” the State Bank of Pakistan’s Financial Stability Review (FSR) 2023, released on Friday, said.

The report said the increase in assets was mainly due to investments in government securities, while loans to the private sector declined due to tight macrofinancial conditions.

The review highlighted that the macroeconomic environment remains challenging amid rising inflation, weak foreign exchange inflows and pressure on the country’s external account and local currency, and low business confidence, particularly in the first half of calendar year 2023. “However, policy measures and regulatory interventions that were taken to address rising imbalances, combined with the securing of a nine-month Stand-By Arrangement (SBA) from the IMF, helped improve macroeconomic conditions in the second half of 2023,” the report said.

The report indicated that the expansion of banks’ balance sheets was mainly financed by deposits, which recorded the highest growth in 20 years in a high-profitability environment.

“However, credit risk did not raise any major concerns as the ratio of non-performing loans (NPLs) to credits increased slightly to 7.6% by end-December 2023 from 7.3% in December 2022, while provisioning coverage improved to 92.7%,” the report said.

Banking sector revenues remained healthy, thanks to high interest rates and growth in earning assets, which supported the sector’s solvency.

As a result, the capital adequacy ratio (CAR) improved to 19.7% at the end of December 2023, remaining well above the minimum regulatory requirement.

Published in Dawn, July 6, 2024