KARACHI, Aug 28: The first six months of the financial year 2004 have brought bonanza for the banking sector as most private banks report improved profits, say analysts.

In a sample of four banks, Askari, Union, Meezan and PICIC Bank that announced their 1HCY04 results on the same day, all of them were noted to have posted decent growth over the corresponding period of last year.

"Overall, we remain positive on the banking sector as a whole as rising interest rates would positively enhance core margins as rise in interest rates to depositors follows after a lag," say analysts at First Capital Equities (FCEL) and the stock brokerage firm adds that the truth was that banks had been increasing their profitability even in a declining interest rate environment signalling proactive margin management capabilities.

Analysts stated that after having been added in the list of companies eligible for badla financing, there had been renewed interest in Union Bank's stock. Union Bank had risen by Rs4.25 (15pc) since the beginning of FY05. Union Bank posted a 50pc rise in Profit after Tax (PAT) to Rs358m (EPS Rs2) in 1HCY04 as compared to a PAT of Rs239mn (EPS Rs1.33) in 1HCY03.

Rise in bottom line comes on the back of a doubling of Net Interest Income (NII) while a 64pc rise in fees and commissions has also contributed.

"A decent Rs200m kept as provisioning against non-performing loans and advances is a prudent measure by the management as Union has considerable exposure to retail consumers," commented the analysts. Union announced bonus at 10 per cent.

PICIC Bank was another stock, which saw considerable activity in the run up to the result on expectations of a bonus announcement. Although PICIC Bank did not announce a bonus, it did give a decent 15pc interim cash dividend to its shareholders. Seventy-eight per cent rise in profit after tax from Rs242mn in 1HCY03 to Rs431mn in 1HCY04 had been a consequence of a close to Rs500mn increase in Net Interest Income.

Decline in non-interest income and an increase in operating expenditure managed to restrict growth in Profit before Tax to Rs225m. Meezan Bank's PAT for 1HCY04 grew to Rs111mn (EPS Rs0.94) from Rs92mn (EPS Rs0.78) in the corresponding period last year. There was a 22pc rise in net spread earned. Fixed income and capital gains showed decent growth but administration expenses increased by 50pc.

"With awareness and preference of Islamic Banking on the rise, the business model for Meezan Bank is quite strong," said the analyst and added that until the government makes available Shariah compliant forms of T-bills and PIBs available in the market, Meezan Bank would suffer from a lack of sound investment options.