Banks need to mobilise addl funds to up lending capacity

KARACHI - The heightened credit risk and increased portfolio of infected loans will remain the major challenge for the banking system in the coming quarters. Nevertheless, the results of stress tests reflect systems strong capacity to endure extraordinary shocks in major risk factors and avert the emergence of any systemic risk, says SBP report.
The State Bank of Pakistan on Monday released its Quarterly Performance Review report of the Banking System for the second quarter ended on December 31, 2009.
According to report, the traditional slowdown of first calendar quarter is likely to dampen the growth of banks lending portfolio and deposits. The tapered growth in deposits coupled with banks increased risk aversion and public sectors high demand for bank credit are likely to shift asset mix further towards government papers. However, banks capacity to lend private sector will largely depend upon their ability to mobilize additional funds and retirement of commodity operation borrowings by the government.
The aggregate earnings of the system are expected to remain fair and largely immune from sharp credit risk. However, the individual banks are likely to experience mixed results depending upon their sizes and relative earning capacity. As per the report revelations, the overall earnings capacity of the system has remained fair; however, the earnings are largely concentrated in large and medium-sized banks, as most of the small-sized banks’ bottom lines were either low or in red,” it said and added that the pre-tax Return on Assets remained 1.5 percent (1.2 percent for CY- 08) during Oct-Dec CY09.
It said the country’s banking system has experienced let up in the buildup of credit risk, which has significantly increased over the last six quarters, as the growth in banking system’s Non-Performing Loans (NPLs) substantially pacifed during the quarter under review.

Source: http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Business/23-Mar-2010/Banks-need-to-mobilise-addl-funds-to-up-lending-capacity