RATES, SLOW BUSINESS HIT PAK BANKS’ PROFITS /
Low interest rates and an economic slowdown have pulled the bank profits down, for the first time in years. But some other businesses are doing quite well in the private sector, despite noises of a business slow down. They are enjoying dividends in 6-25 per cent range. On the top are the consumer goods items, specially those manufactured by foreign companies, as well special foods.
The profits of the Top-5 banks are now reported to have declined, compared to the hey times — five years ago. But some smaller banks are still doing fine. These include Dubaibased Bank Alfalah.
The banks in Pakistan have been enjoying more than 7.0 spread — one of the best in the world — for years. But with the advent of the Tight Monetary Policy (TMP) and shrinking of the Discount Rate (DR), the banks started, a jorney down the lane. The State Bank for Pakistan (SBP), the central bank, was forced to adopt TMP in order to push back the rising inflation rate which had gone up to 14 per cent plus. It is down to 9.1 per cent now, but has started to rise once again, and SBP has described it as a “14 month high.” The commercial banks which used to lend at 16-18 per cent, are now down to the range of 11-12 per cent. This is because the benchmark Karachi Inter Bank Offered Rate (Kibor) for six months is 9.56 per cent.
The Top-5, holding 60 per cent of Pakistan’s total deposits, and covering 74 per cent of the banking market capitalisation, have just reported a 12 per cent annual reduction in their profitability over the first nine months of calendar year 2013 — January-September, 2013. What will the last quarter of calander-2013 bring forth for them ? It is being keenly watched by the banking market, investors, and the financial analysts. The Big-5 are: the government-owned National Bank, Aga Khan’s Habib Bank, UAE-operated United Bank, Muslim Commercial Bank owned by Mohammad Mansha, Pakistan’s richest business tycoon, and the Allied Bank. SPB, too , has reported reduced profit.
The declining DR and interests rates being charged by the commercial banks are considered to be the culprit. During the third quarter, alone — July-September, 2013 which is a major business boomer in normal times, the bank profitability was down 14 per cent year-on-year, reports from the Big-5 said.
National turned out to be the worst performer, recording a 50 per cent year-on-year cut in profitability. NBP’s poor performance also adversely affected the averages for the Big-5 profitability. If NBP is excluded from the analy-
The banking sector profits will remain under pressure in the immediate term
Syed Irfan Ahmad
sis, the profit of the other four banks was up six per cent year-onyear. A considerable increase in the earnings accrued from reversal of provisioning worth Rs460 million, against Rs3.724 billion in 2012.
Muslim Commercial Bank, on the other hand, performed exceptionally well and recorded a 4.0 per cent year-on-year increase in profitability in nine-months to September 30,2013. The net interest income (NII) of the Top-5 was down six per cent year-on-year, and totaled Rs140 billion during the ninemonth period of calendar 2013 — down from Rs148 billion in the like period of 2012.
Another element which adversely impacted the profits was larger provisioning for defaulted or badly performing old bank credits. This provisioning had to increased by one per cent during these nine months, compared to the like period of 2012. A the same time, the non-interest income rose three per cent to Rs58 billion. The third quarter saw the cumulative profitability of the Top-5 earnings of Rs19.1 billion which translates into a 14 per cent reduction, when compared to the like period of 2012.
In this scenario of a less than a rosy picture, Dubai-based Bank Alfalah reports a profit after tax (PAT) of Rs3.318 billion during the ninemonths to September 30, 2013, despite a discouraging business environment. Its net interest income in this period was Rs12.519 billion, as compared to Rs13.879 billion in the like period of 2012.
Alfalah’s non-performing loans’ infection ratio was 8.5 per cent — lower the banking sector average, which shows the good quality of portfolio of advances.
SBP reports that its own profit in fiscal year-2013 — July 1,2012 to June 30,2013 (not calendar year which is used by commercial banks) — declined by Rs 27 billion to Rs 233.7 billion.
Syed Irfan Ahmad, a financial sector analyst, said: “The banking sector profits will remain under pressure in the immediate term due to the latest development of linkage of minimum deposit rate profit, but a considerable improvement in earnings will take place in 2014 and beyond.”