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Banks in Pakistan enjoy huge profits
B anks big or small, are enjoying big profits. This is despite slightly declining interest rates, increase in non-performing loans, and a reduced GDP growth.
Interest rates of commercial banks have eased 100 basis points or less on the back of a reduction of 350 basis points in the benchmark Discount Rate, or DR, set by State Bank of Pakistan, or SBP, the central bank, over the last four years. DR, as of now, has come down to 10.5 per cent, which signalled to commercial banks to bring down their own lending rates.
An analysis of the financial reports of the five big banks, for first half year — January to June, calendar year 2012, shows that consolidated profit sharply rose 21 per cent, on a year-on-year basis.
The profit is surely good because, during this period, the Net Interest Income (NII) declined.
The profit rose because the non-interest income, during the half year rose, while provisioning for bad or Non-Performing Loans (NPLs) was down.
The growth was nine pre cent year-on-year, chiefly as a result of the banks’ investments, largely in government paper and bonds issued by SBP on behalf of Islamabad. In sum, the banks’ operations have, for mo nths, concentrated more on investment than lending.
The Big-5 banks’ Profit Before Tax, or PBT, for the first half year was up 19 per cent and Profit After Tax, or PAT, 21 per cent, when it is compared to the first-half 2011. They earned nine per cent more mark up.
The provisioning for bad or defaulted loans was down 61 per cent, while the net mark-up income after provisioning was up 11 per cent.
The banks reported their “other income” rising 26 per cent. But operating revenues rose four per cent, and “other expenses” were up 12 per cent.
The banks concentrated on mobilising low-cost deposits. An increase of 100 basis points in deposit rates, or profit paid to depositors, on Profit & Loss Sharing, or PLS, savings accounts, led to a 23 per cent rise in interest expenses or payments.
It also led to the gross spread of the banks to decline to 50.4 per cent from 56.2 per cent in the previous period, the Big-5 also report. Pakistan’s Big Five Banks are: Habib Bank, National Bank, United Bank, MCB Bank Limited, and Allied Bank. Principally: Habib is controlled by the Aga Khan Group. National is with Pakistan government. United is under UAE’s Abu Dhabi Group. Both MCB Bank Limited and Allied are owned by Pakistani businessmen, MCB Bank Limited by Mansha Group, and Allied by Shaikh Ahmad Mukhtar of Ibrahim Group.
Besides the Big-5, the small banks, too, did almost exceptionally well. They wiped off their losses of Rs1.440 billion incurred in first-half of 2011 and piled a profit of Rs1.348 billion in first-half of 2012, their consolidated reports show.
A rise in earnings of assets boosted the mark-up income of small banks, by 20 per cent, to Rs17,278 million, during the first-half 2012 compared to the like period of last year. The net mark up income was up 56 per cent at Rs5,198 million.
They enjoyed an asset growth of 12 per cent in June 2012 compared to December, 2011. They went on lending more to the government, buying secure and risk-free government paper, not advancing to the private sector.
The small banks’ spread went up to 30 per cent, compared to 23.1 per cent in the like period of 2011.
Small banks also saw a 17 per cent growth in their deposits, as a result of expansion of heir branch network, and intense marketing. Their “other income” grew 81 per cent year-on-year, while management and administrative spending rose 12 per cent, year-on-year.
The profit before tax was plus Rs2114 million, compared to a minus of Rs1,016 million in the like period of 2011. The profit after tax was Rs1,346 million, compared to a negative Rs. 1,440 million.
There are two interesting examples of small bank operations. UK-based Standard Chartered Bank (SCB), with the largest branch network among foreign banks operating in Pakistan, declared a profit before tax riding 45 per cent at Rs3.9 billion in first-half 2012, compared to the like period of 2011.
The other “small” bank-Metropolitan Bank, controlled by Komail-Habib Group, recorded a three per cent growth in mark up totalling Rs13,261 million, compared to Rs12,867 million in the like period of last year. Its PBT rose 40 per cent to Rs2,759 million, up from Rs1,968 million in first-half 2011.
The banks’ PAT rose 31 per cent to Rs1,875 million, compared to Rs1,433 million in first-half 2011.
It all shows that the going for the banks, big or small, is good, and the overall financial sector is not lagging behind, but leading he economy.
Views expressed by the author are his own and do not reflect the newspaper’s policy
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