KARACHI: The outgoing fiscal year 2008-09 proved critical for banks as their profits and deposits fell, while the bankers and analysts see no chance of recovery of economy and banks profits during the new fiscal since demand is falling and NPLs are rising.

How the next year would be, was not clear to most of the bankers, but they said it could be another year of low demand and poor performance for the banking sector as well as economy.

‘Banks will remain under pressure during the new fiscal year as demand is at very low level,’ said Aftab Manzoor, President Allied Bank and Chairman Pakistan Banks’ Association.

He said a number of worries go with the new fiscal year and that was basically the poor economic growth.

He said the textile sector was in trouble, they were not getting orders, which reduced liquidity demands from the banking sector.

Many bankers expressed their fear regarding the rising non-performing loans (NPLs), which crossed over Rs100 billion during the year and they felt that figure would further rise next year. ‘The non-performing loans (NPLs) will further increase next year,’ said Mr Manzoor adding that power crisis also played a negative role in economic development. He said the recent announcement of 17 per cent electricity price hike would badly hit the SMEs (small and medium enterprises) and ultimately it will affect banks.
‘Law and order situation is also a serious source of concern for economy, which slashes demands. Buyers prefer to go to India and Bangladesh, instead of coming to Pakistan, due to operation against militants in the northern part of the country,’ said the chairman PBA.

However, some analysts believe that the year will see some major changes in the wake of several mergers and acquisitions like sell-off of Royal Bank of Scotland, merger of mybank with Askari Bank, Silk and Atlas Bank.

Both bankers and analysts were of the opinion that the year 2009-10 would see the negative impacts of low economic growth with high inflation, rising current account deficits loaded with foreign debt and prevailing global recession. ‘Banks can not grow under the depressive economic conditions. Banks don’t grow in isolation,’ said a senior banker of one of the largest banks.

However, the most painful issue for bankers was the rising NPLs that slashed their profitability and could further hamper the banks’ performance. NPLs rise when economy slumps, he added.

Analysts said the new fiscal would be another economic year burdened with the heavy borrowing. The just ended year witnessed a government borrowing of Rs600 billion, which was Rs98 billion higher than last year. The government sets new record of borrowing each year. On the other hand, the private sector’s net borrowing set a new low record during the fiscal as it fell to minus Rs3 billion, which means net withdrawals. Bankers said it was the impact of high interest rate, slow economic activity and global recession.