The net profit of the banking sector grew by 14 per cent on year-on-year basis and amounted to Rs 68.10 billion in first nine months of this fiscal.
Last year, the banking sector net profit stood at Rs 59.80 billion from January to Sept 2006.
The sector maintained the same level of 14% growth in nine months as in 1H/CY07 after excluding one time capital gain of PRs10.5bn booked by HBL, but as the bank has now reverted back to the “cost” basis from “fair value” basis in its 3Q/CY07 results, it has been eliminated from the profit and loss account.
According to Atlas Capital report, the continuous upward pressure on the banks’ cost of funds that made the interest rate spreads growth shrink to only 9bps on yearly basis and gradual decline in the credit demand from the private sector were the main reasons attributable to the relatively low profitability growth. Banks witnessed handsome hike of 43.3% and 107.9% in aggregate earnings in 9M/CY06 and 9M/CY05 respectively on the back of higher return based on core business activities.
This year, among the top tier banks, Bank Alfalah topped with124.1% increase in the bottom line on the back of one time capital gain of PRs1.8bn (excluding which the earnings of BAFL declines by 9%), while BOP’s net earnings grew by 34.8%. The major heads that affected the overall growth of the banking sector companies are as follows:
Net advances of listed banks, which account 93% of the total advances of the scheduled banks in Pakistan, stood at PRs2.3tn by the end of September 2007, increasing by 4.3% over PRs2.2tn in December 2006. The weighted average lending rates also observed a rise of 114bps to 11.1% from 9.95% in 9M/CY06 that resulted in 29% upsurge in the interest income to PRs265.4bn in 9M/CY07 as compared to PRs205.1bn in the comparable period of last year. Among the top tier banks, SCBP witnessed the highest growth of 96% followed by BOP with 58% growth. The lowest growth in interest income was seen by PICIC Commercial Bank with 12% rise in interest based income.
ò Deposits witnessed year to date increase of 16.5% to PRs3.5tn, whereas the borrowing rate rose by 40bps from 2.7% in 9M/CY06 to 3.71% in 9M/CY07, cumulatively making the interest expense to grow by 45% to PRs125.9bn in the period under review. SCBP again topped in this head with interest expense increasing by 101% followed by BOP with 97%.
Owing to SBP’s planned removal of Forced Sales Value (FSV) benefit for adjustment against non-performing loans effective from December 31, 2007, the banking sector profitability is likely to decline by 10 to 15 pc for calendar year 2007.
It is important to point out here that earlier the profitability was projected around 20 to 25 percent. State-owned National Bank of Pakistan and Bank of Punjab will be remained in top as far as banks’ profitability is concerned.
Although banking sector’s ADR has come down to 63 percent in the outgoing quarter giving plenty room for reasonable loan book growth, banks have deliberately started cautious lending to avoid any major default in future.
With banks focusing more on raising funds by offering comparatively higher rates on deposits and gradual slowdown in the appetite for the credit from private sector particularly textile sector drove the advances-deposits ratio (ADR) of banking sector down to 63% by September 2007 from 72% at the end of year.
Income from non core business activities was a major support to the overall banking system profitability. Non-interest income grew by 36% to PRs56.8b in 9M/CY07 over Rs41.8b in 9M/CY06. Highest ever dividend of Rs6.2 per share dividend given by the NIT and one time capital gain of Rs1.8b realized by Bank Alfalah on the partial offload of Warid stake added to the bottom line besides usual increase in the fee, commission & brokerage income of all the banks. BAFL led the sector with 115% rise in non-interest income followed by the SCBP with 99% increase.
ourtesy by “RAMZAN CHANDIO “