KARACHI, March 22: The private banks are showing a sustained and robust growth, outperforming their foreign and local peers.

Over the past 2-3 years, these banks have turned into niche players and have enhanced their market share by offering competitive rates on both credit and deposits and by enlarging their branch networks.

In the total bank deposits of Rs102.1bn mobilized during July-December 2002, the share of private banks stood at Rs68bn. Their share in the total bank credit of Rs55.2bn was a hefty Rs48.6bn.

Senior bankers say that the group enjoys a competitive edge on second and third tier clients not targeted by foreign banks and under-served by major commercial banks.

Some of these banks have major business groups as sponsors who provide a base for their operations. These include Askari Bank, an enterprise of the Army Welfare Trust and Metropolitan Bank sponsored by House of Habib. Two development financing institutions, PICIC and Pak-Kuwait own one commercial bank each.

Union Bank has expanded rapidly by acquisition of branches of foreign banks, Bank of America and Emirates.

Some of the private banks have also emerged as community-based enterprises. By enhancing their paid-up capital these banks have improved their capital adequacy ratio (CAR). In some cases, the CAR target fixed by the central bank has been exceeded.

And to quote State Bank officials, most of the private banks have created specialized marketing teams which are playing an important role in increasing their client base. Generally, their executives are more easily accessible to their clients than their counterparts in foreign and nationalized commercial banks.

Some of them are fast expanding their branch network. In first quarter of current fiscal, these banks opened 34 branches.

The SBP second quarter report 2003 says that “some private banks have already established niches in consumer banking during the last two years.” At least two of this groups are extending housing financing and a similar number is about to follow suit soon.

The comparatively better performance of private banks, says the SBP report, reflects their higher deposit rates, increased branch network, as well as improved marketing efforts, says the SBP report. Since the borrowers normally deposit their funds with lending banks, the report reckons that institutions recording higher credit growth would also be expected to witness stronger deposit growth.

During the second quarter 2003, the weighted average lending rates of private banks were reduced by 180 basis points, as against cut of 132 basis points for the entire industry and less than 100 basis points for the nationalized commercial banks.

In the corresponding period, the foreign banks, however, reduced their lending rates by 235 basis points because of their poor credit performance in the first quarter when their disbursement dropped to Rs60bn as compared to Rs90bn during the same period in FY 2002.

According to the SBP figures compiled for the first half of FY 2003, the growth in credit of private banks was to the tune of Rs48.6bn as compared to an increase of Rs10 billion for privatized bank that, for meaningful comparison, includes UBL. Foreign banks’s credit increased by Rs1bn. NCBs saw a negative growth in advances of Rs8.3bn. Similarly, deposits of private banks during second quarter 2003 rose by Rs68 billion, as compared to Rs20.5 billion for privatized banks (including UBL) and Rs21bn for NCBs and a fall of Rs8.3bn for foreign banks.

The deposits of NCBs declined because of withdrawal of funds by public sector enterprises amounting to Rs26.6bn in December 2002. The fall was primarily because of dividend, paid by PTCL to shareholders at the end of the calendar year.

As the foreign banks have the largest foreign currency deposits to total deposit ratio (FCDs), the overall reduction in FCDs have affected these banks more severely. With focus on rupee deposits, foreign banks are at a disadvantage due to their limited branch networks.

It was in the fiscal year 2000 that the market share of private banks in both deposits and advances exceeded those of foreign banks. The trend has been maintained.