Lending to government: SBP’s profit down 35pc on lower income

KARACHI: The State Bank of Pakistan’s (SBP) profit declined sharply by 35 percent during the last fiscal year (FY21), primarily due to lower income from lending to the government.

According to the SBP’s Annual Performance Review (APR) issued Friday, the SBP earned a consolidated profit of Rs 761 billion in FY21 as compared to a profit of Rs 1.163 trillion in FY20., depicting a declined of Rs 402 billion. “The decline in profit is primarily attributed to lower income from lending to the government, maturing of PIBs, and decrease in average interest rate during FY21,” the SBP maintained.

The Board of Directors of the State Bank of Pakistan on October 26, 2021 approved the Annual Performance Review on the working of the Bank and its subsidiaries and the financial statements for the year ended June 30, 2021. The Annual Performance Review (APR), including financial statements of the Bank and its subsidiaries and the auditor’s report thereon for FY21, has been released to the public and transmitted to the Federal Government pursuant to Section 40(2) of the State Bank of Pakistan Act, 1956.

The APR revealed that Pakistan Investment Bonds (PIBs) worth Rs. 569 billion matured during the year and no fresh lending was made by the Bank to the Federal Government, resulting in lower income under this head.

Moreover, decrease in average interest rate during FY21 also impacted adversely on income from lending to government. Income from reverse repo transactions and foreign currency deposits also witnessed a decline while charge on account of fair value adjustment on COVID loans significantly increased during the year.

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The decline in income from these major income/expense streams is partly offset by decrease in interest/mark-up expense and operating expenses. SBP group also earned higher net exchange gain during FY21 as compared to the previous year due to appreciation of PKR against other currencies particularly USD during the year.

As per report the SBP’s total assets stood at Rs 13,603 billion as at June 30, 2021 as compared to Rs. 12,273 billion on June 30, 2020, registering an increase of Rs 1,330 billion primarily due to increase in securities purchased under agreement to resell.

Similarly, the total liabilities of the bank stood at Rs 12,446 billion as at June 30, 2021 as compared to Rs 11,219 billion as at June 30, 2020, registering an increase of Rs 1,227 billion.

According to SBP, FY21 remained a particularly challenging year as the global economy adjusted to the economic and financial challenges posed by the COVID pandemic, including multiple waves of virus outbreak and ensuing containment measures. Amid such testing times, however; Pakistan’s economy rebounded strongly compared to the previous fiscal year as well as in comparison with the targets set for FY21 at the beginning of the fiscal year.

The SBP’s supportive monetary policy stance including quantitative measures to inject liquidity in a timely manner, supplemented by fiscal policy measures, provided a targeted, dynamic and well-coordinated policy response to COVID. These measures helped address the imminent liquidity and solvency concerns of businesses and households that had been emerging since the virus outbreak in March 2020 and supported the better than anticipated economic performance during the FY21.

The economic growth rebounded to 3.94 percent during the year, well above the target set for the FY21 of 2.1 percent and COVID induced contraction of 0.47 percent in FY20. The inflation also moderated to 8.9 percent in FY21 – well within the target range of 7-9 percent announced by SBP. Similarly other key macro-economic balances including current account, fiscal balance and the country’s foreign reserves improved during the FY21. The SBP’s quantitative measures were well targeted, well diversified across beneficiaries and temporary in nature; and in aggregate provided liquidity support of around 5.0 percent of GDP.

To ease off the challenging business environment, the SBP swiftly introduced concessional refinance schemes to prevent layoffs (Rozgar Scheme); facilitate healthcare institutions to upscale their facilities (Refinance Scheme to Combat COVID); and encourage firms to undertake long-term investments (under the Temporary Economic Refinance Facility).

Export related procedural requirements were relaxed to counter the limited mobility amidst unfolding national lockdowns and scope for concessionary Export Finance Scheme (EFS) was expanded. In addition, SBP allowed bank’s loan restructuring and loan deferment for firms including SMEs and households.

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Furthermore, the anchoring of inflation expectations, despite some upward pressures from supply management issues and surge in international commodity prices, allowed the Monetary Policy Committee (MPC) to keep the policy rate unchanged throughout the year. The adoption of forward guidance on Monetary Policy by SBP since January 2021 played a major role in reducing short-term policy uncertainty for stakeholders.

With regards to Payments Infrastructure of the country, SBP undertook major initiatives aimed at financial inclusion, digital on-boarding of customers, enabling remote banking, providing digital modes of investments to customers through banking channels and improving payment systems efficiency. SBP in collaboration with Government and Commercial Banks launched Roshan Digital Account (RDA), which received USD 1.56 billion deposits via 181,556 RDAs. This influx of foreign exchange has positively supported the country’s balance of payment position.

Financial inclusion remained top strategic priority at SBP, in line with the vision of National Financial Inclusion Strategy. During FY21, SBP’s special focus remained on rural, underserved and unbanked areas, while issuing licenses for opening of new branches of commercial and microfinance banks.

With regards to credit disbursement, SBP had a renewed focus on underserved economic segments, especially housing and construction finance, agriculture finance, and finance for micro, small and medium enterprises. Moreover, the third five-year strategic plan for the Islamic banking industry was issued by SBP in April 2021 to set a strategic direction and strengthen the existing growth momentum of industry. With respect to its regulated entities, SBP during FY21 implemented Risk Based Supervision Framework- a forward-looking framework that would allow the SBP to pursue a coherent risk-based approach through proactive identification of risks, and take timely mitigation measures to ensure financial stability in the country.

To achieve its broad strategic goals and strengthen the organizational efficiency, SBP took major initiatives during FY21 aimed at workforce rationalization, attaining gender diversity, automation of process workflows, strengthening cyber security and risk management framework and improving transparency through enhanced communication with external stakeholders.

Copyright Business Recorder, 2021