The financial sector continued to expand last year whilst exhibiting resilience amidst challenging market conditions both globally and domestically, the Central Bank said in its annual report released last week.
In 2016, assets of the banking sector grew at a slower pace than in the previous year mainly reflecting the tighter monetary conditions that prevailed during the year, while the sector continued to maintain its capital and liquidity levels well above the minimum statutory requirements.
The asset base of the banking sector recorded a growth of 12.0 per cent driven by increased loans and advances. Deposits of the banking sector expanded by 16.5 per cent during 2016 mainly on account of the growth in time deposits in the backdrop of a high interest rate environment, although borrowings by the banking sector recorded a decline of 3.5 per cent during the year mainly due to a reduction in foreign currency borrowings. Profitability of the banking 11 sector as measured by the Return on Assets (ROA) and Return on Equity (ROE) improved during 2016 reflecting the increase in net interest income of the banking sector.
The report notes that the banking sector maintained capital and liquidity at levels higher than the minimum regulatory requirements, and continued to manage risks prudently during the year. Asset quality improved during 2016 recording the lowest non performing loans (NPL) ratio in the past two decades.
In the meantime, the banking sector expanded its operations during 2016 through the establishment of new banking outlets and installation of new Automated Teller Machines (ATMs). The licensed finance companies (LFCs)/specialized leasing companies (SLCs) sector grew in terms of assets and the branch network during 2016. The LFC/SLC sector placed more emphasis on other loan products, gradually moving away from the core business of financing the purchase of motor vehicles. This growth was mainly funded through domestic borrowings as the sector’s reliance gradually shifted towards bank borrowings from retail deposits considering its flexibility and cost. Increased business volumes and improved operational efficiency coupled with a moderately increasing net interest income enabled the LFC/SLC sector to post an increased level of profits in 2016.
Risks in the LFC/SLC sector as a whole remained at manageable levels as reflected by comfortable levels of NPL, liquidity and capital. Meanwhile, Primary Dealers in government securities recorded a decline in their total investment portfolio as well as total assets. However, total capital and profitability of the Primary Dealer industry recorded a growth. In the Unit Trust industry, total assets as well as the number of units issued recorded a decline in 2016.
Investments in government securities by Unit Trusts increased significantly, while investments in equities recorded a marginal decline. Meanwhile, total assets of the insurance sector expanded in 2016 with the contribution of both long term insurance and general insurance business categories. Total profits earned by the insurance sector marked a considerable growth in 2016 led by an impressive performance in the general insurance sector. With regard to superannuation funds, total assets of the sector recorded a modest growth in 2016 as a combined result of the increase in income generated through investments and net contributions by the members of these funds