KARACHI, Aug 29: Profit after tax (PAT) of 19 commercial banks listed at the stock exchanges grew by 96 per cent during the half year ended June 30, 2005. This was assessed by separate reports by brokerage firms JS Capital Markets and InvestCap.
In its listed banks’ performance review, the JS Capital Markets report stated on Monday that 2005 would be the fourth consecutive year of double digit profitability growth of the banking sector as evident from the 1H2005 results.
The report mentioned that there are 37 scheduled banks in Pakistan, out of which 34 are commercial banks. Among commercial banks 20 are listed. These 20 banks represent approximately 70 per cent of the total assets and deposits of commercial banks. Saudi Pak Commercial Bank was left out of the analysis as its 1H2005 results have not been announced yet.
Profit after tax (PAT) of 19 listed commercial banks grew by 96 per cent and reached Rs19bn in 1H2005 from Rs9.8bn a year earlier. Profit before tax of the sector grew by 85 per cent to Rs28.8bn. In the period under review effective tax rate was 33.6 per cent whereas it was 37.3 per cent a year earlier. This was also one of the factors towards PAT growth. Six per cent of bottom line growth was due to reduction in effective tax rate.
Major contribution to earnings growth during 1H2005 was made by the net interest income (NII) of the banks. NII grew on account of higher banking sector spread coupled with the record credit disbursement during the above mentioned period. The banking sector as a whole distributed credit of Rs170bn during the period under review. Average spread between lending and deposit rates during 1H2005 has reached 547 bps as against 382bps the corresponding period a year earlier, a growth of 167 bps. Non interest income: Dominated by fee income among non interest income, major contribution was made by fee commission and brokerage income on account of rising trade activities in the country. Interestingly during 1H2005 exports and imports of $7.9bn and $11.7bn were respectively at peak and the participation of banks in this business is benefiting their bottom line.
The report by InvestCap pointed out that banking sector, as expected, showed tremendous growth in profitability during Jan-June 2005 compared to Jan-June 2004. This was mainly because of the higher credit base of the country and increasing interest rates which in effect increased the banking spreads. There are now 20 listed banks in the country, with four out of the big five now on the bourses. The two recently added banks are Allied Bank and United Bank…Saudi Pak Commercial bank was left out as the bank is still not out with its 1H2005 results.
In rupee terms, total profit of the banking sector increased by Rs9.3bn, increasing from Rs9.8bn in 1H2004 to Rs19.1bn in 1H2005. Out of the total 19 banks that were analyzed, only three showed a decline in after tax profits, namely Askari, Crescent and NIB. KASB Bank restated its 1H2004 earnings which now show an increase in profits. Askari’s decline in profits was due to a one time gain booked by the bank in 1H2004. The extra-ordinary jump in income is also due to the presence of Allied Bank in our sample, which had a loss of Rs628mn in 1H2004 and showed a gain of Rs1.02bn in 1H2005. Excluding Allied bank from the analysis, total growth in profitability was 74 per cent. Net Interest Income of listed banks grew by 77% in 1H2005.
Analysts were positive about the banking sector due to increasing spreads along with a growing credit base. The growth in profitability was expected to keep on increasing for the short term and to become stable going forward as the credit base of the country stabilizes.
