Qudsia Bano

In a remarkable transformation over the past three fiscal years, Pakistan’s financial sector has emerged as a powerhouse, showcasing unprecedented growth and expansion. The fiscal year 2022-23 witnessed a surge in sector assets, reaching an astounding Rs8.94 trillion. The revenue landscape also experienced substantial growth, with the industry posting a noteworthy 31% increase, escalating from Rs467.53 billion in FY21 to Rs614.648 billion in FY22. The insurance sector played a pivotal role in driving this growth, experiencing a remarkable 40% annual rise to a total of Rs409.929 billion in FY22. Contributing to the revenue surge, banking, non-banking financial institutions (NBFI), and development finance institutions (DFIs) posted increases of 14%, 27%, and 31%, with absolute figures of Rs172.920 billion, Rs6.247 billion and Rs25.551 billion, respectively. Investments soared to Rs6.2 trillion in FY22, up from Rs2.411 trillion in FY21, while lending decreased from Rs385.145 billion to Rs133.540 billion.

The influx of REPO (repurchase agreement) borrowings from the State Bank of Pakistan played a significant role in boosting asset growth, though private-sector lending remained low. The upward trajectory extended to net profits surging to Rs72.569 billion in FY22, reflecting a remarkable 46.5% increase from the previous year's record of Rs49.544 billion. The sector's net profit margin rose from 10.6% to 11.8%, indicating the presence of economies of scale. The banking industry significantly contributed to this increase, generating a total net profit of Rs35.035 billion, marking a notable 66.3% growth from FY21. In contrast, the NBFI sector experienced a 46% decrease in profitability compared to the previous year. In an interview with WealthPK, Shahid Javed, a senior economist at the State Bank of Pakistan, said: “The notable increase in sector assets, soaring from Rs4.98 trillion to an impressive Rs8.94 trillion, underscores a strategic alignment of financial entities with dynamic market demands. This surge signals a proactive approach to capitalising on emerging opportunities.” “The revenue growth of 31%, reaching Rs614.648 billion in FY22, is particularly noteworthy.

The diversification of revenue sources, with the insurance sector leading the charge with a 40% annual rise, showcases a well-balanced portfolio. This diversified approach, coupled with contributions from banking, NBFI and DFIs, positions the sector to weather uncertainties and sustain momentum.” However, he said it's essential to dissect the nuances of this growth. “The banking industry's impressive 66.3% increase in net profit, contrasted with the projected 46% decrease in profitability for the NBFI sector, raises questions about sector-wide strategies. A closer examination of factors influencing these divergent trajectories will be crucial for sustained success,” Javed explained. “While the sector's overall performance is commendable, it's imperative to address challenges and potential vulnerabilities. Private sector lending remains low, despite the overall growth, which warrants a closer look. The impact of short-duration investments versus longer-duration liabilities on asset-liability matching adds a layer of complexity that demands prudent management strategies,” he further said.

Credit: INP-WealthPk