KARACHI, April 30: Banks succeeded to maintain high profitability in the first quarter of 2007 driven by the rising interest rates income mainly on account of high banking spread.

Banks’ profits during the first quarter grew by 24 per cent to reach Rs18.3 billion compared to Rs14.8 billion during the corresponding period of last year.

Five top listed banks including NBP, MCB, UBL, ABL and Standard Chartered Bank (SCB) earned Rs13.9 billion collectively or 76 per cent of the total banking profits.

Analysts said that if banks succeeded to maintain profitability till the end of the year, it would be the sixth consecutive year of profitability growth in the banking sector.

“During the first quarter, growth in earnings of banks was mainly driven by rising net interest income of the banks, which rose from Rs28 billion in the first quarter 2006, by an impressive 31 per cent to Rs36.7 billion in first quarter 2007,” Atif Malik, an analyst at JS research said in his report.

He calculated earnings and profits on the basis of available results of 80 per cent of the total listed banks.

“Net interest income grew mainly on the back of higher spreads between lending and deposits rates,” said Malik

As per the SBP data, banking sector’s average spread in first 2 months (Jan-Feb) of 2007 went up by 20 basis points to 7.47 per cent from an average 7.27 per cent in the first two months of 2006.

The continuous positive growth in profits of the banking sector remained negative for the depositors as reflected from the high banking spreads, which made it possible for banks to increase net interest income.

---“Askari Bank topped with 75 per cent growth in net profits in 1Q/CY07, while BOP’s net earnings grew by 71 per cent,” said Hifza Zia research analysts at Atlas Capital Markets.

Among the top-tier banks, SCB witnessed the highest growth of 136 per cent followed by BOP with 71 per cent growth in interest income, added Zia. The highest growth in SCB was the acquisition of Union Bank.

Zia said banks have started showing signs of cooling off in terms of profitability growth as they showed 57 per cent and 95 per cent rise in earnings in 1Q/CY06 and 1Q/CY05, respectively. The reasonable rise in profits can be attributable to the modest increase in interest rate spreads and higher credit demand from the private sector.

Analysts said that non-interest income of the banks also depicted decent growth of 16 per cent to Rs11.5 billion in which major contribution came from fee income (43 per cent share in the total non-interest income) that grew by 5 per cent to Rs5 billion.

Dividend income and capital gain, however, declined by 53 per cent and 31 per cent to Rs0.4 billion and Rs1 billion, respectively.

“Moreover, administrative expenses rose by 34 per cent to Rs19.1 billion versus Rs14.3 billion in 1Q2006,” said Atif Malik.

The administrative income is higher than the total profits of the banking sector reflecting the high cost of banking mainly borne by the depositors.