Stock market rally helped in NBFIs and DFIs equity growth

KARACHI (November 04 2003): Robust rally at the stock market during the last fiscal year helped register tremendous growth in equity of non-banking financial institutions (NBFIs), development finance institutions (DFIs) and investment banks.

According to the Annual Report of State Bank of Pakistan for 2002-03 released on Monday, total assets of NBFIs grew by 14 percent, supplying Rs 22.9 billion.

This growth was largely motivated by the boom in domestic stock market and the expectations of further interest rate cuts in the money market, leading to higher allocation towards investment rather than advances.

As a result, the share of investment in total assets rose from 21.7 percent in FY02 to 31.7 percent in FY03.

DFIs alone raised their investment by Rs 10 billion. Similarly, investment banks almost doubled in both stock market and government securities. Rest of the institutions posted marginal growth.

On the other hand, the report said, there was little progress in the financing activities by these institutions, as the total advances grew only marginally.

This was mainly due to shifting focus of DFIs advances to investments and net retirements by public sector enterprises.

Larger contribution in the latter decline was because of one of the joint venture companies, total assets of which declined by Rs 3 billion.

Advances to earning assets declined from 56.4 percent in FY02 to 55.3 percent in FY03, while the investments to earning assets increased from 31.8 percent to 34 percent.

The good news, however, was the significant strengthening of capital ratios of NBFIs during the year along with rising profitability.

During FY03, the equity of all DFIs grew sharply, mainly due to huge profits booked at the end of financial year 2002, with Pak-Libya Holding (PLHC) being the only exception.

On the other hand, growth in deposits remained negative because of foreign currency deposits continued to fall.

As mentioned earlier, investments of DFIs grew very sharply both in government securities and stock markets.

Investment in shares accounted for almost 59 percent of their total equity, posting a threat to the capital adequacy of these institutions.

INVESTMENT BANKS: FY03 proved to be a better year for investment banks. The shift in asset portfolios of these banks did not show much difference from what was observed in the case of DFIs.

Investment rose much sharply on account of visible returns available on securities. But, contrary to the trend in DFIs, advances of investment banks also rose in FY03.

However, 77 percent of sectoral growth came only from Trust Investment Bank, with a net credit growth of Rs 15 billion during the year. None of the other companies showed any remarkable performance.

It should also be noted that this particular bank has been merged with another investment bank.

These two, jointly took over Doha Bank, to establish a new commercial bank. Hence, the assets of this company would no longer be the part of this group from next fiscal year.

It may be recalled that major players of this category, Al-Meezan, Al-Faysal and Crescent Bank have already merged into commercial banks.

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