Daily Times

KARACHI: The lending to Federal Government and commercial banks along with earnings on the foreign exchange reserves remained major sources of State Bank of Pakistan’s (SBP) profit for FY17 which registered a modest growth of 4 percent over the last year’s profit, increasing to Rs 238,064 million from Rs 229,353 million in FY16, says Annual Performance Review on the working of the Bank and its subsidiaries for the financial year which ended on June 30, 2017.

The growth is primarily attributable to increase in the discount income by Rs 21,086 million and interest earned on foreign assets by Rs 5,365 million partly offset by decrease of Rs 17,519 million in income on reverse repo transactions.

The growth in expenses during the year also remained modest with just over 2 percent increase. The note printing charges, agency commission paid to National Bank of Pakistan for undertaking government banking business on behalf of the Bank and establishment cost are the major expense heads constituting over 90 percent of the expenses. Towards the end of FY17, the Bank added another subsidiary i.e. the Pakistan Security Printing Corporation (PSPC). Accordingly, this financial performance review includes seventeen days operational performance of PSPC also.

According to the APR, the interest/mark-up income increased by just over 3 percent to Rs 260,871 million. However, the interest earned on lending to Federal Government increased by 14 percent due to a significant rise in the government borrowings from the Bank. The interest earned on lending to commercial banks through reverse repos reduced by 22 percent due to significantly lower volumes of reverse repos. The Government borrowings from Bank provided additional space to commercial banks for lending to the private sector during FY17. It also substantially improved liquidity in the interbank market.

The interest earned on Export Finance Facility (EFF) and other related refinance facilities declined to Rs 6,400 million in FY17 from Rs 7,201 million in FY16 due to reduction in the interest/mark-up rates. Although the average outstanding loans to banks under refinance schemes increased significantly during the year to Rs 287 billion from Rs 199 billion in FY16; the average interest/mark-up rate reduced from 3.5 percent in FY16 to 2.2 percent in FY17 causing a decline of over Rs 2 billion in the interest/mark-up earned on refinance schemes.

The exchange gains/losses arise on the FCY assets and liabilities of the Bank. The exchange account includes both the realised and the unrealised gains and losses. Major part of the foreign currency assets of the Bank are USD denominated whereas the foreign currency liability exposure is mainly SDR denominated. Accordingly, the movement in the PKR/SDR and PKR/USD exchange rates directly affects the exchange account. The Bank earned net exchange gain of Rs 24,569 million during FY17 as against Rs 25,779 million earned during FY16, registering a decline of 5 percent (see Table 8.5). The PKR depreciated against USD by Rs 0.020 and appreciated against SDR by Rs 0.366; accordingly, the depreciation against USD resulted in exchange gain of Rs 8,059 million and appreciation against SDR resulted in exchange gain of Rs 2,723 million. The remaining net exchange gain of Rs 12,049 million is due to appreciation and depreciation of PKR against other currencies.

The central banks APR shows that the banknote printing charges increased to Rs 9,128 million in FY17 from Rs 7,731 million in FY16, thereby registering an increase of 18 percent. The increase is largely attributed to increase in quantity of banknotes printed (Rs 1,295 million) and partly to price escalation (Rs 139 million).

The assets stood at Rs 6,866 billion on June 30, 2017 compared to Rs 6,450 billion on June 30, 2016, registering an increase of Rs 416 billion primarily due to increase in investments in Market Related Treasury Bills. The increase is further augmented due to acquisition and consolidation of PSPC assets which led to an increase of Rs 71 billion in the balance sheet of the Bank. The liabilities of the Bank stood at Rs 6,296 billion on June 30, 2017 compared to Rs 5,830 billion on June 30, 2016, registering an increase of Rs 466 billion.

The increase in GDP growth led to an increase in currency in circulation while banks’ deposits also witness a significant growth due to improved liquidity in the market. The increase was partly offset by decrease in government balances at year end.

Published in Daily Times, November 1^st 2017.