Sunday, 2 July 2017

Bank Profits Dealt A Blow On Low

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Bank profits dealt a blow on low bond yields

Banking profits were down 40 percent to $ 178.8 billion in the nine months to March. This is because the yield on government bonds, which rely on banks at risk, is still low.

Direct tax collections also increased 10.2% from July to March, but increased 15.4% from the previous year. A slowing economy can track down corporate tax rates as corporate profitability slows.

As evidenced by the auction patterns of recent auctions, the bank's interest in government securities has also been reproduced from March to March. However, according to the third quarter report of the State Bank of Pakistan (SBP), the ratio of P / B to official price was much higher than that of Pakistan Investment Bonds (PIB).

Commercial banks offered 4.3 trillion yuan to the Treasury auction held in the third quarter against a target of $ 3.5 trillion. Most suggestions were for three months and six months tenors. The government received a significant amount of money compared to the goal to promote retirement of the maturing PIB this quarter.

In addition, there was a change in the government borrowing from SBP during the second and third quarters of the outgoing fiscal year. The government recovered Rs 177.3 billion to the central bank during the first quarter, which borrowed heavily from SBP in the second quarter. This retirement was made possible by the reduction of government deposits held with SBP and borrowing from commercial banks.

The PIB auction painted a relatively different picture in the January-March quarter. Overall, the government failed to achieve the pre-auction goal by demanding higher interest rates by banks. With this development, the composition of domestic debt within Pakistan has been transformed into an important substitute for long-term debt and short-term debt. Due to an increase of KRW 1.6 trillion from July to March, the ratio of current liabilities rose from 36.7% at the end of June 2016 to 44.8% at the end of March.

Short-term borrowing helped to reduce service costs, but it worsened the maturity profile and increased government risk for rollover and re-pricing risks.

"For example, from 47.7% in June 2015 to 51.6% in December 2016, the debt increased to 53.6%," the SBP report said. June 2015

In terms of ownership, some government securities have been transferred to non-bank financial institutions through secondary market transactions, but about 80% of government securities are still held by commercial banks.

Similar to commercial banks, non-banking banks also replaced Treasury bonds in the PIB for the first quarter of 2016-17. However, the increase in investment in both types of bonds showed fresh investment during the second and third quarters.

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