KARACHI, April 20: Unprecedented growth in profitability has encouraged banks to spend sumptuously turning the banking industry as the highest spending sector of the economy in calendar year 2006.

Banks incurred a record expenditure of Rs76.310 billion on account of lavish spending on decoration of branches, expansion of branch network and hefty increase in the salaries of the bankers during the year under review.

The expenditure increased by 22 per cent compared to the previous year. The banks opened 283 new braches pushing up the total number of branches 6,865.

The balance sheets of these banks showed that their combined profits rose to Rs80 billion during 2006 compared to Rs60.5 billion the previous year. These were the results of the listed banks and Habib Bank covering over 80 per cent of the banking sector. Profits of the banking industry rose by 32.2 per cent in 2006.

“High spending is a sign of high growth resulting in record profits and showing the growth potential the sector,” said Muhammad Imran, an analyst.

However, the banking sector did not share its fortune with depositors who have been getting negative return on their savings.

The latest data issued by the State Bank revealed that the banking spread was 7.4 per cent in February 2007. It makes clear that while making record spending for the growth of banks and bankers, the sector still keeps much of the profits by itself.

Despite warnings by the State Bank to cut down the banking spread and improve rate of return to depositors, no change in ‘profit-making behavior’ of these banks was witnessed so far.

The prevailing high inflation and low return on deposits resulted in high public spending and low saving rates.

“If the negative return on deposits prevails, the saving rate which is the lowest in the region will decline further threatening the economic growth,” said another analyst.He said the 8 per cent inflation was enough to convince the people to spend their savings instead of losing purchasing power of their hard earned money.

The government has also been failed to mobilise deposits on its National Saving Schemes. Money is being withdrawn from most of the schemes under NSS except Behbood Scheme which offers better return.

The latest data issued on Thursday regarding NSS showed that during July-February 2006-07, Rs4.234 were withdrawn from the DSC (Defense Saving Certificates) and Rs10.787 billion drained out from the Regular Income Certificates (RIC). The government could hardly raise Rs33.873 billion under the banner of NSS and most of amount came in the account of Behbood Scheme, introduced for widows.

“Economic growth is only good for fortune hunters. We have been left far behind the benefits of the prosperity,” said Saeed Abbas, a retired government official depends on savings in NSS for his livelihood.