KARACHI, Feb 12: All commercial banks combined earned after-tax profit of Rs23.6 billion in the year to September 2004 which represents 83 per cent of their after-tax profit of Rs28.4 billion in the calendar year 2003.
According to Banking Supervision Department of the State Bank of Pakistan, this huge gap kept the return on assets or ROA of the commercial banks at 1.2 per cent-the level seen in full year 2003.
"Based on the results of first three quarters, net interest income (of commercial banks) is likely to remain stable in calendar year 2004 whereas capital gains will shrink significantly," says the central bank in the quarterly performance review of the banking system.
The report says that an increase in fee incomes and a fall in the incidence of taxes and non-performing loans would make up for this reduction in capital gains. The report says that specialized banks may, however, "end up with aggregate loss for this year too as they are still not out of the woods."
At the end of September 2003, there were 36 commercial banks in operation including 25 local and 11 foreign banks. The number of specialized banks, three at that time still, remains unchanged. These are (1) Zarai Taraqiati (Agricultural Development) Bank Ltd. or ZTBL (2) Industrial Development Bank of Pakistan; and (3) the Punjab Provincial Cooperative Bank Ltd.
The SBP report says that the quality of income of commercial banks also improved as major part of their year-to-date income was derived from stable sources. Though share of overall non-interest income in the gross income almost remained same around 40 per cent, the composition of such income witnessed a significant change towards core income.
The gains on sale of securities which were a major driving force behind last year's strong profits were replaced by fee-based income. Accordingly, the share of such gains in gross income reduced to 7.8 per cent from 16.5 per cent in calendar year 2003 whereas the share of fee-based income rose by 4.5 percentage points to 17.3 per cent. The improvement in the fee-based income is attributable to accelerated foreign trade activity.
Overall, the share of non-core income has dropped to only 7.8 per cent now as compared to 16.5 per cent in the calendar year 2003.
The outlook for this year and onward suggests that the banking sector is well set to post another remarkable performance on last year scales. "Pick-up in economic activity has enabled them to achieve and sustain an all time high level and enriched mix of earning assets."
If the economy continues to show the present vigour, which "it is expected to do at least in the short run; banks will post commendable profits."
Two things are sure to increase banks' profits during this calendar year-the first being a higher offtake of private sector credit and the other rising interest rates. But the SBP report warns that while larger lending portfolios bode well for the banks' future earnings, they also demand increased vigilance on the part of the banks and the regulators.
