January 09, 2007	Tuesday	Zilhaj 18, 1427

KARACHI, Jan 8: Banks are set to oppose any move by the State Bank to compel them to offer better returns on deposits, said banking sources. State Bank governor Dr Shamshad Akhtar had announced last month that the SBP would take action if major banks failed to increase returns to depositors.

Her announcement came in the background of record profits by the banking sector and negative returns to depositors amid substantial growth.

The banks, however, did not move an inch to soften their stance over returns to depositors though the SBP approached the banks to bring in reforms.

Bankers said they were waiting to see what measures SBP takes to compel banks for higher returns.

“I don’t think that the State Bank can take any legal action to impose its decision,” said a banker, adding there was no option in the prudential regulations in this regard.

Bankers fear criticising the SBP, and have been discussing the possibility of imposition of ‘minimum return’ to depositors by the SBP.

“There is no hint from the SBP, but we have discussed it as an option to tackle the situation,” said the banker adding “the banks are getting expert opinion on it and other possible actions the SBP can take.”

Large banks have grown strong enough to resist any move which may slash their profit. Top six banks hold 63 per cent of the share of banking sector while public sector share has been declining. The share of public sector is gradually coming down as the government is privitising banks and selling shares to the private sector.

Though the banking sector remained the best in terms of profit during the year 2006, its profit is expected to decline against the record profit of 104 per cent previous year.

Performance of the sector proved best in the capital market and its market capitalisation rose by 34 per cent during 2006.

Despite best performance and high profits, the banking spread is still 7.5 per cent. The main hurdle is high cost of banking. Bankers said that due to tough competition, large amount is consumed to hire skilled bankers.

“Expansion in the banking sector has created a shortage of skilled workers and the salaries of bankers have gone up manifold,” said A. Abbasi, a banking expert.

He said a banker who used to get Rs25,000 to 35,000 two years back is now drawing a salary of Rs150,000 to Rs170,000 per month.

Skilled bankers are getting maximum benefit, out of the boom in the sector, but it has tremendously increased the cost of operations. The banks have passed on the maximum load of banking cost to depositors instead of absorbing it themselves.