Pak bank profits hit peak despite slow economy

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Pak bank profits  hit peak despite slow economy
Pakistan's big five banks - National Bank of Pakistan, Habib Bank, United Bank, MCB Bank and Allied Bank - earned a profit after tax of Rs111.892 billion, up 32 per cent in the whole year 2014 when compared to their CY-13 profit of Rs84.708 billion.

The latest profit reports for Q1 of calendar year 2015, which closed on March 31 showed banks profits recorded a historic high of 58 per cent.

By M. Aftab

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Published: Sun 12 Jul 2015, 12:00 AM

Last updated: Mon 13 Jul 2015, 12:39 PM

Pakistani banks profits have gone through the roof while the economy still stays slow to pick up. The latest profit reports for Q1 of calendar year 2015, which closed on March 31 showed banks profits recorded a historic high of 58 per cent, totalling Rs80 billion compared to the like period of CY-14.
The asset base of the banking system was up 3.5 per cent, or Rs422 billion, to reach a total of Rs12.5 trillion. The increase came on the back of the banks' larger investment in government bonds and securities. The credit advances recorded a net retirement "primarily due to the seasonal adjustments and drop in commodity prices." The liquidity of the banking system remained at "a comfortable level: with "a continuing accumulation of huge stocks of liquid assets in the form of government securities," State Bank of Pakistan (SBP), the central bank, said in its Quarterly Review of the Banking Sector for January-March 2015. But the SBP also cautioned about the quality of assets, which it said, "slightly deteriorated".
The ratio of non-performing loans (NPLs) to gross loans increased by 50 basis points to 12.8 per cent. The ratio of NPLs to net losses rose by nine basis points to 2.8 per cent in Q1.
But with the increase in the capital base during the quarter, capital impairment ratio (net NPLs to capital) was down 27bps to 9.8 per cent, which means "declining risk to the future earnings and equity of the banking system."
The Return on Assets (RoA) rose 2.6 per cent from 1.9 per cent in Q1 of CY-15 as compared to the like quarter of CY-14. The smaller bank are doing fine in terms of earnings and sometime even doing better than the large ones. Lets have a look at the Big Five banks.
National Bank of Pakistan, Habib Bank, United Bank, MCB Bank and Allied Bank earned a profit after tax of Rs111.892 billion, up 32 per cent in the whole year 2014 when compared to their CY-13 profit of Rs84.708 billion. As the banks lent more and more to the government rather than the private sector, their overall amount of NPL came down. Their provisioning for NPLs has also come down by 39 per cent to Rs1.2 billion as compared to Rs2.2 billion, respectively for full year 2014 and 2013.
Ironically, these high profits accrued from commercial banks' huge lending to the cash-starved government, which is facing growing budgetary deficits even after claims of "positive performance" made by Finance Minister Ishaq Dar. Naturally, while the commercial banks were gleefully lending to the government at high rates and with sovereign guarantees, the private sector -industry, business and the foreign trade segments of the economy are cash-starved for working capital, renewal and upgrading of old machinery, what to talk of new capital investment. As of now, out of the banks' total lending, credit to government mounts to 90 per cent. It is 43 per cent of their total assets.
While the profits are going up and up, the bankers have turned snug and lazy. They do not have to go after potential borrowers and undergo the routine chore of checks for safety of the money to be lent or face the hassle of ensuring repayments.
The big plus in the profits has assisted banks to improve their capital adequacy ratio (CAR) to 17.4 per cent, the SBP reported. The minimum CAR limit set by SBP is 10 per cent while the international benchmark is eight per cent. The CAR as at end-December-214 was 17.1 per cent.
Thirty-three per cent of the banks have posted profit. The number of loss-making banks is down to four.
The banking systems' growth and increased profitability is attributable several elements, including return on investment in government bonds and securities, which alone contributed 34 per cent. There was a nine per cent increase in return on investment. Forex-based income also rose.
There was a "negligible increase in deposits". The deposit base of Rs9.38 trillion increased by Rs85 billion. The quarter saw saving deposits rise by 3.4 per cent and current account deposits by 2.1 per cent while the fixed deposits were down by 2.4 per cent.
Going forward, the SBP sums up the banks' operations and their performance by saying: "The earnings performance of the banking sector is expected to remain robust and will boost the equity base of the banking system."
Views expressed by the author are his own and do not reflect the newspaper's policy.



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