08/09/2008
|
Credit defaults overrun profitability
|
|
Banks’ non-interest income decline 36pc
Monitoring Desk
ISLAMABAD: Country's economy has been battered forcefully by the poor political and law & order condition and even sprawling banking sector has not been able to get away from the influence and banks' credit default has shot up while profitability has gone down tremendously, the latest banking operations analysis revealed on Sunday.
Commercial banks' results for the half year to June 30 of the calendar year 2008 indicate that the net profit declined by 20 per cent to Rs34.4 billion, which was Rs43.0 billion in the like period of 2007.
The bad news for banks was a 36 per cent decline in their non-interest income. This was because their income from capital gains was down as the bourses and equity markets performed badly, particularly during April-June, 2008. However, the banks recorded a good growth in their non-funded income. Fee income, for instance, rose 21 per cent to total Rs18 billion. Income from foreign currency deals rose sharply by 67 per cent. The income from other heads rose an impressive 39 per cent. The key reason for the decline is that the banks, during the above mentioned period, had to make larger provisions totalling Rs26.4 billion to cover the credit repayment default of the Non-Performing Loans (NPLs), which was 5.0 per cent higher than the like period of last year. Larger provisioning was followed by absence of capital gains because of the ongoing bearish performance of the bourses in April-June, 2008. If the provisioning for NPLs is excluded, the banks‚ profitability, in fact, rose 27 per cent in the first half of calendar 2008, compared to the like period of 2007.
The analysis has been conducted by a Karachi-based First Capital Equities Limited (FCEL), which brings an x-ray report of the overall banking sector of Pakistan including 23 banks which represent 96 per cent of market capitalisation. These banks have 90 per cent of the banking sector deposits.
The overall NPLs for all banks rose 4.6 per cent to Rs250.594 billion on June 30, compared to March 31 this year. The reason was default in consumer and farm loans advanced by all the big-5 banks.
Despite lower profitability, the revenue growth was quite impressive as Net Interest Income (NII) witnessed a 14 per cent growth, totalling Rs99 billion. The growth was contributed by an 11 per cent increase in credit.
On the negative side, banks‚ administrative expenses rose 25 per cent to Rs57.9 billion. The banks now have to offer more attractive pay and perks to its personnel in a competitive environment where the availability of high grade and efficient personnel is in short supply.
The banks also have to spend more on upgrading their facilities, equipment and premises. The FCEL and other financial analysts are projecting a rising growth in revenues and profitability during the second half of calendar 2008 to December 31, at the same rate. But, it may even surpass it with larger credit growth for the private sector.
The analysts expects that as soon as the present low in business and industrial activity is replaced by a buoyant environment, the private sector demand for credit will rise, ensuring higher income and profitability for banks.
|
|