KARACHI, March 3: Despite emergence of new banks, the monopoly of five large Pakistani banks in the banking sector further strengthened as their collective profits constituted over 80 per cent of the entire profits of the banking industry for 2007.

Bankers said the profits would have been more than what were earned this year, had the banks not forced by the State Bank for one time provisioning (adjusting the bad loans).

However, the overall profit of the banking industry recorded a growth of 4.5 per cent compared to last year. The overall profit of banks rose to about Rs73 billion compared to Rs69.8 billion last year.

A calculation of balance-sheets of all banks showed that the banking sector provided Rs25 billion provisions alone during the last quarter of 2007, however the provisioning of entire year was Rs34.5 billion and this was 166 per cent higher than that of last year.

Though the credit flows to the private sector showed a lower growth but the banks succeeded to increase their profits thanks to high banking spread. High banking spread means banks keep most of the profits while passing on much little to the depositors on whose money they pile up profits each year.

“This year the banking spread dropped slightly by 10 basis points to 7.3 per cent,” said Mohammad Imran, head of research at First Capital Equity. He believes that profits of the banks could have been more if the spreads remained intact with the old number.

National Bank earned the highest profit Rs19.405 billion (12.5 per cent up compared to last year) and the MCB Bank was the second highest profit earner with Rs15.266 billion (up 25.7 per cent).

Habib Bank was the biggest loser in terms of profit reduction as its profits declined by 14.6 per cent, while that of United Bank were down by 11.2 per cent. Allied Bank succeeded in maintaining its early position.

An overview of the banking sector showed that the five big banks have further monopolised the market and their shares in terms of profits increasing. A senior banker said that the one of the biggest banks, HBL could have earned much more than what it earned this year as the bank was busy in structuring itself.

Mr Imran said that besides provisioning, administrative expenses of the banking sector also registered an increase of 17 per cent to Rs86 billion during the year 2007. High administrative expenses are a bad sign for the growth of the banking industry, which has a banking spread of 7.3 per cent.

He said the net interest income (NII) witnessed a growth of 13 per cent to Rs159 billion in the year 2007

“The lukewarm growth in NII is mainly due to a relatively slower growth in advances of 10 per cent or Rs242 billion,” he said.

This slower growth was due to tight monetary policy, which encouraged banks to buy more Treasury bills instead of advancing their money to market.

The fear of rising inflation has been a key point in the monetary policy but it failed to curtail the main inflation (Consumer Price Index) despite the fact that both monetary growth (M2) and Reserve Money remained significantly below for the last seven months.

“The year 2008 will bring high profits for the banks as the State Bank has increased the discount rate,” said a senior banker. He said banks would earn through higher return on T-bills and higher lending rates while their will be very little impact of provisioning this year.