Sun, May 23, 2004 - Page 11 News List

Pakistani banks beat foreign firms


Commercial banks in Pakistan fared well last year despite fears that falling interest rates might leave a big hole in their balance sheets.

The performance of foreign banks remained lackluster, which analysts put down to small branch networks and poor reach to the people. Three of the total 14 foreign banks reported losses.

Including the foreign banks, Pakistan has 37 commercial banks. Overall, the banking sector witnessed volume-based deposit and advance-driven growth.

After-tax profits of the banking sector grew by 76 percent, an increase of 12.1 billion Pakistan rupees (US$210.52 million) last year to reach 28.2 billion rupees up on 16 billion for 2002.

"This is encouraging, because with declining interest rates banks capitalized on volume-based growth," said Mohammad Suhail, research head at Invest Capital, a brokerage house.

A significant factor contributing to this good showing was huge capital gains posted on their equity and fixed income investments.

One analyst described capital gains as a "sweetheart" for banks last year "as the stock market continued to rise and values of fixed income securities rose with decline in yields. Dividend income also contributed and chipped in to make the picture rosier," he added.

Total expenses increased to 62.9 billion rupees, an increase of only 6.4 billion or 11 percent when compared with those recorded a year earlier.

"The 11 percent surge in expenditures indicates that banks [especially private banks] have focused on expansion and modernization," banking industry sources said.

There was a visible change in terms of automation, computerization, branch integration and physical renovation of Pakistani banks during the year as they took steps towards becoming consumer friendly.

Profits of the three nationalized commercial banks grew by 4 billion rupees or US$70.17 million (93 percent) last year, to reach 8.4 billion rupees, from interest and non-interest income.

National Bank of Pakistan and Habib Bank Limited, two of the country's largest, the latter now privatized, took advantage of the size of their balance sheets, especially their low-cost investments.

"The foreign banks, when compared, show that these banks find it difficult to compete with relatively efficient private banks and bigger nationalized banks," according to industry analysts' assessments.

Profits of 13 private banks grew by 5.2 billion rupees (122 percent) to reach 9.4 billion rupees last year. Net interest income and non-interest income surged by 5.1 billion rupees and 6.3 billion, respectively.

"Private banks have done very well and witnessed growth in relatively high-yielding loan book," said another banking analyst.

"Some private banks [Faysal and Alfalah] have also booked huge capital gains," he added.

Suhail said the country's money supply had been growing by about 15 per cent annually in recent years, thanks to increased remittances, helping banks to strengthen their deposit base.

He added that banks had utilized the deposits efficiently in enlarging their credit operations resulted in improved profitability.

"The banks would continue to perform well during 2004 and profitability would grow as indicated by their results in the first quarter," he added.

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