sustained momentum in remittances, the currency depreciated by 12% over the second-half of the year and annual CPI inflation closed at 12.3%. The State Bank of Pakistan responded through increasing the policy rate by cumulative 2.75% from September 2021 onwards, to close the year at 9.75%. Other measures taken by the State Bank of Pakistan to lower inflation and keep the economic recovery sustainable included higher cash reserve requirements, tightening of consumer finance and restriction of non-essential imports.
During this period, Large Scale Manufacturing, which exhibited a sizable 14.9% growth rate in FY21 (Jul-Jun), slowed to 3.3% in FY22 (Jul-Nov). Private sector credit grew by 13% in FY22 (Jul-Dec) after growing 11% in FY21 (Jul-Jun), mainly driven by increase in working capital financing requirements.
On the fiscal side, FBR tax collections grew significantly by 33% during the second half of the year. The budget deficit was contained to 2.1% of GDP during 1HFY22 from 2.5% in 1HFY21, with further fiscal consolidation likely following the enactment of the Finance (Supplementary) Act 2022 in January 2022.
The economic headwinds were compounded by multiple waves of the COVID-19 pandemic, the evolving geopolitical situation, and delayed finalization of the IMF program which had a negative effect on the capital markets during the year, as KSE-100 index remained volatile and closed flat.
Going forward, the pace of Pakistan’s economic growth trajectory may moderate in the wake of coordinated fiscal and monetary stabilization measures. Key risks include any faster than anticipated increase in global interest rates and rising international oil and commodity prices under a fast evolving global economic and geopolitical scenario.
During the period, Company closely monitored the COVID-19 situation and invoked required actions to ensure the safety of its staff while providing uninterrupted operations. Company maintained a cautious stance with focus on reducing risk, recoveries, and booking profit opportunistically. As a result, NPLs were reduced by 39% and provisioning coverage was increased from 65% to 94%. Given the high inflationary reading, to safeguard against future interest rate shock, Company prudently took a strategic decision to reduce fixed-rate PIB book.
Overall, as a result of the above Company achieved an excellent result. Profit before Tax increased by 66% to Rs. 1,341 Million while Profit after Tax increased by 50% to Rs. 922 Million. Total comprehensive income was Rs. 1,547 Million. Net interest margin increased by 44% to Rs. 1,431 Million. Dividend income increased by 99% to Rs. 319 Million as a result of portfolio allocation in high dividend yielding stocks. Shareholder’s equity increased by 12.0%. This is an excellent result achieved during a very difficult operating environment.
The Company’s overall risk profile including operating results and financial flexibility was reconfirmed by external Credit Rating Agency VIS who maintained Company’s long term entity rating at AA+ and short term rating at A-1+ with stable outlook.
Moving forward, Company remains well-positioned to capitalize on available opportunities as and when they present themselves. Focus will remain on the core business of project finance. The Board firmly supports management to pursue its plans.
In the end, I would like to express on my behalf and on behalf of the Board our sincere gratitude to the joint venture partners, the Kingdom of Saudi Arabia and the Islamic Republic of Pakistan for their unwavering support and State Bank of Pakistan as well as Securities Exchange Commission of Pakistan for their professional guidance. I am also thankful to the Board Members for their valuable contributions. Further, I thank and congratulate the Saudi Pak staff and management for this excellent performance amid extremely challenging conditions.
Sultan Mohammed Hasan Abdulrauf