KARACHI, Aug 29: Despite political turmoil in the country and an apparently weakening economy, banks’ advances grew by 11 per cent pushing profits higher during the first half of the current calendar year, 2008.
Banks earned 27 per cent higher profit during the period (Jan-June) 2008 but the massive provisioning against the non-performing loans (NPLs) resulted in the decline of net profits by 20 per cent.
“During the period, listed commercial banks’ net profits were recorded at Rs34.4billion, a decline of 20 per cent against Rs43.billion in first half of 2007,” said Mohammad Imran, head of research at First Capital Equities.
The revenue growth of the banks remained impressive with net interest income (NII) registering a growth of 14 per cent to Rs99 billion. The increase in NII was primarily contributed through growth in advances which was 11 per cent.
The power crisis, 24 per cent main inflation, rising interest rates and rupee depreciation with falling foreign exchange reserves have been the main concerns of the economists, who were predicting a substantial decline in the economic growth.
However, the banks’ performance showed that the economy is still on track as both revenue of banks and advances increased during first six months of this year.
Analysts said banks performance is a benchmark for the growth of an economy as the supply of money shows the economic activities.
Banks would have earned much more profits had the Karachi Stock Exchange performed normally as it did last year.
“In the banks’ non-interest income notable decline of 36 per cent was witnessed in capital gain income due to negative performance of KSE during the period,” said a research carried out by a brokerage house, the FCEL.
During the six months the stock market performed worst resulted in loss of billions of rupees and barred the investors like banks to come close to it.
However, banks earned handsome income from dealings in foreign currencies.
“Fee income grew by 21 per cent to Rs18 billion, while income from dealing in foreign currencies registered a growth of 67 per cent,” said Imran.
Despite handsome growth in revenue, the banking sector’s profitability declined mainly due to the higher provisions on account of NPLs. Provision against NPLs increased by almost 5 times to Rs26.4 billion.
If the provisioning is excluded, the banking sector profitability registered a growth of 27 per cent during the six months.
Banks have to go for provisioning because of State Bank’s tough stand on the issue as it directed the banks to clear the NPLs from their balance sheet.
However, a number of bankers believe that NPls would continue to rise in the future as the risks went higher with the higher interest rates.
