20:31
Unknown
KARACHI: The State Bank of Pakistan (SBP) in its latest financial stability review on Monday revealed that a total of 12 banks have failed to meet the minimum capital requirement (MCR) of Rs8 billion fixed by the central bank for the year ended December 31, 2011.
The second-half yearly review (calendar year 2011) said that with the prevailing level of unfavourable geo-political developments and the country’s economic and structural issues, it is becoming increasingly challenging for the banks to convince their foreign and domestic shareholders to further enhance the capital base of the banks.
The State Bank said that the banks are required to meet minimum capital adequacy ratio (CAR) requirements of 10 percent, which most of the banks met quite comfortably.
However, as of end of December 2011, only five banks with a market share of 3.6 percent remained short of minimum CAR. These included two specialised banks, which are undergoing restructuring and three small private sector banks that represent 3.4 percent market share. This indicated a limited risk posed by such banks to the system as a whole.
“The stress tests results for the second half of 2011 showed that the banking system is well poised to withstand historical, as well as hypothetical credit, market and liquidity risks shock, though severe credit shocks due to high infection ratio may bring the solvency of some banks under stress,” according to the report.
A major challenge faced by some banks, particularly the smaller ones, is to meet the minimum capital requirement that is set to grow gradually to Rs10 billion by 2013.
Though banks are making efforts to meet the above regulatory requirement by reinvesting their profits, however, they still remain short of meeting it on account of depressed global and domestic conditions, it said.
The report also revealed that despite the fact that the capital base remained robust over the years, rising non-performing loans (NPLs) continue to threaten the capital base of the banking system.
The capital at risk (Net NPL to capital ratio) surged continuously due to persistent flow of NPLs. However, the ratio declined marginally by 17 basis points to 25.6 percent during the second half (July-December) of CY11, which is a welcome development but, it is still high enough with a tendency to adversely affect the solvency of the banking sector, according to the report.
“Increasing concentration of advances to the corporate sector is likely to pose certain risks for banks. Sensitivity analysis of group exposures showed that the capital adequacy of the banking system would be affected the most, in case top three private sector corporate groups default,” it said.
According to the report, the asset base of the financial sector registered a growth of 15 percent during CY11. This was largely driven by the growth in the banking sector. Overall operating performance of the financial sector improved over the year as return on assets (ROA) rose to 1.4 percent in CY11 from 0.9 percent in CY10.
The share of financial sector in GDP declined marginally to 57.4 percent due to double-digit inflation, it said.
The report predicted that resilience of the financial sector is expected to remain vulnerable to the threats faced by the macro-economy.
The banking system remained relatively strong due to improved capital adequacy and solvency indicators, contributed by higher level of profits and equity injections made in CY11, it observed.
The private sector demand for funds, though positive, was restrained due to persistent energy shortages, poor law and order situation, and slowdown in the external demand (exports). The domestic demand for private sector advances revolved around corporate working capital needs and seasonal demand for advances in the last quarter of the year, it said.
However, the demand for fixed investment declined due to the already installed but underutilised industrial capacity, it said.
The report said that the banks’ deposits witnessed a modest growth of 4.7 percent in the second half of CY11 on account of deceleration in customers’ deposit. Attractive National Saving Scheme (NSS) rates and increased investment in the investment portfolio securities (IPS) accounts might be the cause of this deceleration.
Most of the growth in deposits came from customers’ deposits in fixed and saving categories, along with an unexpected jump in the financial institutions deposits.
The banks posted profit-before-tax of Rs170 billion, which was driven by large increase in the net interest income on account of increased returns on growing stocks of investment in government papers, it revealed.
Islamic banking institutions continued to perform well and enhanced their share to around eight percent of the banking assets. During the second half of CY11, the Islamic banking institutions posted 14 percent growth in their assets, and like their conventional counterparts, a considerable portion of incremental assets was funneled into government securities, it said.
During CY11, the assets of non-bank financial institutions (NBFIs) surged by 22.6 percent after declining for two consecutive years, it added.
The insurance sector’s assets grew by 11.7 percent during CY11 with a strong growth momentum in the life insurance sector, it added.
The second-half yearly review (calendar year 2011) said that with the prevailing level of unfavourable geo-political developments and the country’s economic and structural issues, it is becoming increasingly challenging for the banks to convince their foreign and domestic shareholders to further enhance the capital base of the banks.
The State Bank said that the banks are required to meet minimum capital adequacy ratio (CAR) requirements of 10 percent, which most of the banks met quite comfortably.
However, as of end of December 2011, only five banks with a market share of 3.6 percent remained short of minimum CAR. These included two specialised banks, which are undergoing restructuring and three small private sector banks that represent 3.4 percent market share. This indicated a limited risk posed by such banks to the system as a whole.
“The stress tests results for the second half of 2011 showed that the banking system is well poised to withstand historical, as well as hypothetical credit, market and liquidity risks shock, though severe credit shocks due to high infection ratio may bring the solvency of some banks under stress,” according to the report.
A major challenge faced by some banks, particularly the smaller ones, is to meet the minimum capital requirement that is set to grow gradually to Rs10 billion by 2013.
Though banks are making efforts to meet the above regulatory requirement by reinvesting their profits, however, they still remain short of meeting it on account of depressed global and domestic conditions, it said.
The report also revealed that despite the fact that the capital base remained robust over the years, rising non-performing loans (NPLs) continue to threaten the capital base of the banking system.
The capital at risk (Net NPL to capital ratio) surged continuously due to persistent flow of NPLs. However, the ratio declined marginally by 17 basis points to 25.6 percent during the second half (July-December) of CY11, which is a welcome development but, it is still high enough with a tendency to adversely affect the solvency of the banking sector, according to the report.
“Increasing concentration of advances to the corporate sector is likely to pose certain risks for banks. Sensitivity analysis of group exposures showed that the capital adequacy of the banking system would be affected the most, in case top three private sector corporate groups default,” it said.
According to the report, the asset base of the financial sector registered a growth of 15 percent during CY11. This was largely driven by the growth in the banking sector. Overall operating performance of the financial sector improved over the year as return on assets (ROA) rose to 1.4 percent in CY11 from 0.9 percent in CY10.
The share of financial sector in GDP declined marginally to 57.4 percent due to double-digit inflation, it said.
The report predicted that resilience of the financial sector is expected to remain vulnerable to the threats faced by the macro-economy.
The banking system remained relatively strong due to improved capital adequacy and solvency indicators, contributed by higher level of profits and equity injections made in CY11, it observed.
The private sector demand for funds, though positive, was restrained due to persistent energy shortages, poor law and order situation, and slowdown in the external demand (exports). The domestic demand for private sector advances revolved around corporate working capital needs and seasonal demand for advances in the last quarter of the year, it said.
However, the demand for fixed investment declined due to the already installed but underutilised industrial capacity, it said.
The report said that the banks’ deposits witnessed a modest growth of 4.7 percent in the second half of CY11 on account of deceleration in customers’ deposit. Attractive National Saving Scheme (NSS) rates and increased investment in the investment portfolio securities (IPS) accounts might be the cause of this deceleration.
Most of the growth in deposits came from customers’ deposits in fixed and saving categories, along with an unexpected jump in the financial institutions deposits.
The banks posted profit-before-tax of Rs170 billion, which was driven by large increase in the net interest income on account of increased returns on growing stocks of investment in government papers, it revealed.
Islamic banking institutions continued to perform well and enhanced their share to around eight percent of the banking assets. During the second half of CY11, the Islamic banking institutions posted 14 percent growth in their assets, and like their conventional counterparts, a considerable portion of incremental assets was funneled into government securities, it said.
During CY11, the assets of non-bank financial institutions (NBFIs) surged by 22.6 percent after declining for two consecutive years, it added.
The insurance sector’s assets grew by 11.7 percent during CY11 with a strong growth momentum in the life insurance sector, it added.
Posted in: Business news
0 comments:
Post a Comment