Bankers warm up to bigger profits on larger business volume

Pakistani bankers have warmed up to bigger profitability on a projected lager business volume in financial year 2017-18.

In their quest for bigger profits and larger business transactions, the bankers will be aided by the new national budget that will come into force on July 1. This biggest-ever budget in Pakistani history projects the total outlay of Rs5.10 trillion and resource availability of Rs4.68 trillion. It indicates external receipts of Rs837.8 billion. The size of the public sector development programme is Rs2.11 trillion.

These parameters show the size of business transactions in the public sector alone. Add to that the business to be generated by the unfathomed private sector which is geared to, along with the public sector spending, achieve 6 per cent GDP growth. These statistic indicate the tremendous amount of the business which will be handled by the banking and financial sector in 2017-18.

Who will handle what amount of money, and where, will be determined by the new project-locations outside the big cities as well elsewhere, because besides the normal trade and business, the government is all set to spend Rs2.11 trillion of public sector development projects, ranging from building huge infrastructure, motorways and railways, to new electricity projects to technical training and computerisation of large parts of business and social services. It will require opening of hundreds of new bank branches in the unbanked areas. More business, more jobs.

As part of the on-going uptick of the economy, banking business and operations of this sector were already moving ahead. But the budget has now given the sector a good, big push forward. The State Bank of Pakistan (SBP), the central bank, confirms these trend based on its latest report.

In line with the uptick in the economy, which will require larger amounts of credit for new investment, import of machinery and industrial raw materials, and the working capital, plus the government borrowing from the banks to fund its budgetary deficit, the lending by commercial banks rose to Rs2.34 trillion. The government has just raised Rs332.25 billion from the auction of Treasury Bills, SBP reports. The deposits with the commercial banks totaled Rs1.11 trillion, higher than Rs9.69 trillion in the like period of 2015-16. The assets of all commercial banks at Rs15.74 trillion, were higher as compared to Rs13.57 trillion last year. The gross advances were Rs5.86 trillion, higher than Rs4.99 trillion in 2015-16.

SBP also reported that borrowing by all banks rose to Rs2.36 trillion, up from Rs1.84 trillion last year. Investment by all banks stood at Rs7.85 trillion, up from Rs6.88 trillion. The May report by SBP covers the banks' performance. The central, bank, commercial bankers and financial market analysts, all agree on one point: Bank swill get more business and more money.

The government will, likely continue to borrow from he bank, to implement the huge public sector project and paying interest to the banks. If the government intends to achieve a 6 per cent growth rate in 2017-18, investment to GDP ratio has to be pushed forward and the Rs1.1 trillion public sector development programme is to be materialised, vanks will get a shot in the arm, the banking sector will get good profits. The credit lending to the private sector will also expand.

This is a vision of going forward, and going big, as also indicated in the budget for 2017-18. The banking sector, likes painting of this growth picture, too. But still, the bankers are a bit unhappy over Finance Minister Ishaq Dar who is not agreeing to their demand to reduce the 4 per cent Super Tax.

This Super Tax is collected from the non-baking companies, and individuals, at the rate of 3 per cent. The banks wanted that they should be charged the Super Tax at the rate of 3 per cent. This sore point apart, the bankers and other stakeholders agree that the budget will have to push the economy up. Political skirmishing between Prime Minister Nawaz Sharif on the one hand and rest of the stakeholder on the other hand, the budget will have to go through the all the tests in broad day-light, and succeed or fail.

The budget will not turn Pakistan into a heaven-on-earth, but if it fails to achieve its declared claims, Sharif will have to face it at the national parliamentary elections in early 2018, that he wishes to win to enjoy the premiership for the fourth time.

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

Source: Khaleej Times