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Pakistan banks and economy grow despite political turmoil

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Pakistani banks and the economy are growing at a good pace, despite the ongoing war on terror and the political agitation which just been suspended.


This is the picture which emerges in early November, after the main opposition party Pakistan Tehrik Insaf (PTI) ended its protest - 'Lockdown Islamabad', to force Prime Minister Nawaz Sharif out of office. As soon as the Supreme Court of Pakistan started taking steps to probe the opposition allegations, which appeared in the Panama and Bahama-leaks, regarding foreign bank accounts of the ruling and business class abroad, PTI withdrew its plan to "Lockdown Islamabad" on November 2.

The end of the agitation, shot up the benchmark KSE-100 index of Pakistan Stock Exchange (PSX) by up a whooping 1,406 points to  close at 41,290.87 points. The turnover soared over 100 per cent, or 369 million shares to 506.50 shares.

Does it not confirm that the basically, the economy is sound, despite occasional high-wave effect? The ongoing growth trajectory will add to the banking business growth, lager earnings, and still bigger profits.

Does it means Pakistan, has graduated to grow up faster, despite all the domestic skirmishing and ongoing disputes with its neighbours? Yes: Yhis is confirmed not only by its business and economic indicators, but also by top global rating agencies.

Standard & Poor's, this week, revised up long-term, credit rating of Pakistan from B- saying "better policy-making has improved the economy's performance and raised the economy's growth prospects". It said Pakistan continued to benefit under democratically elected government and a reform programme has helped to restore economic stability. But it warned "many of Pakistan's structural weaknesses remain, including a narrow tax base, and security risks that weaken the government's effectiveness and weigh on the business climate".

S&P projects Pakistan's GDP growth at 5.5 per cent in the next three fiscal years - up from the present 4.7 per cent now.

Banking to lead
Here is a piece of good news. The banking sector recorded a growth of 16.1 per cent during financial year 2015-16 which ended June 30, according to the latest banking performance report of State Bank of Pakistan (SBP) issued last week. This is despite the fact that under SBP's tight monetary policy the interest rates of the commercial banks were down to 5.75 per cent - a record low in 42 years. However, the outlook remains stable with high solvency levels, a strong capital base, contained non-performing loans and improved risk-management systems.

How did this good growth level happen? The private sector which was starved of bank credit for years, because of the heavy government borrowing from the banks to fill its budgetary deficit, the loans to the private sector were doubled in 2015-16. It led to a good GDP growth of 4.7 per cent, and the industrial output rose which was good for the economy, and the investment climate improved.

Another cause to feel happy! The Islamic banking saw a 16.8 per cent growth. Its assets rose 14.1 per cent, and
its assets base rose to a record Rs1.745 trillion.

Its assets now have gone up to 11.4 per cent of the  overall banking system assets. The Islamic deposits at Rs1.461 trillion were equivalent to  13.2 per cent of the entire banking sector. The Islamic banking, SBP says, has extended its outreach, as its branch network has risen to 2,146 in 98 districts. It is higher than the 2,000 target, set in the Islamic banking industry's second strategic plan 2014-18.

Agriculture financing rose 16 per cent to Rs599 billion in 2015-16. It added 200,000 new borrowers in last financial year extending the outreach of the sector to 2.4 million, up from 2.2 million in 2014-15. Housing finance rose 17 per cent, with an all time high of Rs20.13 billion.

Branchless baking, whereby people use their mobile phones, has brought in about one million wallets during 2015-16, rising the wallets to 14.6 million all over Pakistan. SBP's low-risk 'Assan Account' or Easy Account plan which provides a simplified due diligence, has brought in 1.13 million persons into the banking system.

After assigning the new targets, and with projected growth of 26 per cent for the more popular, small and medium enterprise (SMEs), the SME portfolio of the banks will rise to Rs386 billon by December 2016 - up from  Rs305 billion in December 2015. SBP projected last week "a 26 per cent growth in small and medium enterprises financing during 2016-17. SBP has introduced higher targets for these SME financing targets were set on January 1, 2016.

Enlarging the financing capacity of the SME sector is part of the SBP's National Financial Inclusion Strategy  (NFIS) and is aligned with SBP's Vision 2020, to extend the SME Credit reach to 300,000 SME's, recording a growth of 82 per cent. The number of SME borrowers at end June 2106 was 164,733.

The writer is based in Islamabad. Views expressed are his own and do not reflect the newspaper's policy.

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