January 18, 2006	Wednesday	Zilhaj 17, 1426

KARACHI, Jan 17: Banks are profiteering massively at the cost of depositors’ money as the returns on deposits are still far below the lending rates which practically made the returns negative because of high inflation.

Weighted average lending rates of all banks reached 10.31 per cent excluding lending on zero rates in November 2005, while the spread between returns on deposit and lending was rising.

The weighted average deposit rates of all banks remained hovering around 3.20 per cent which made the return negative in the wake of high inflation. The inflation for the month of November 2005 was over 8 per cent.

For the last three years banks had shown tremendous increase in their profits. The year 2004 witnessed record growth in the profits of banks but the depositors were getting least returns. The calendar year 2005 would also show record growth in the banks’ profits.

The poor returns to depositors and the soaring bank profits never attracted attention of the State Bank of Pakistan, the guardian of public money.

“In 2005 the main reason for the abnormal growth in banks’ bottomline is rising spread. Weighted average banking sector spread during first 10 months of 2005 remained at 6.12 per cent. Whereas in the last 2 years it moved in a band of 4-5 per cent,” said Salman Jaffrey, analyst at Jahangir Siddiqui Company.

Banks would certainly remember the year 2005 for record profit but the depositors would remain deprived of value of their money instead of sharing profits with the banks.

After losses in 2001, banks found the right path which led them to profits from 2002. During 2003 and 2004 profitability of commercial banks grew by 87 per cent and 23 per cent respectively. A lesser growth number of 23 per cent in 2004 was due to the absence of abnormal capital gains booked by banks during 2003 on their bond portfolio. In the last three years (2002-2004) the main thrust came from growth in loan book (average annual growth in advances was 19 per cent in last three years).

The advances grew during December 2004 to December 2005 by 28.5 per cent. The record credit off-take by the private sector last year boosted the profits of the banks.

However, the deposits also grew significantly during the same span of time. The growth in banks’ deposit registered an increase of 23.1 per cent during the period. The higher deposits allowed banks to increase investment and earn more profits.

Analysts at brokerage houses said that with profitability soaring by around 105 per cent in nine months (Jan-Sept) of 2005, the commercial banking sector with a massive 200 per cent increase in market capitalization was on top of the list.

The high economic growth of 8.4 per cent last year generated economic activity and created money which went to banks as well as other sectors. The poor return from banks diverted investment in the share market where the KSE-100 index once again crossed 10,000 point barrier. The other sector which received huge investment was the real estate where prices crossed all limits and cost of lands hit all time high.

“The low return is one of the biggest reasons for low national income. Inflation which is above 8 per cent would further shrink the value of depositors’ money,” said another analyst.