The performance of privatised and government-run banks were exceptionally well as compared with foreign banks where earnings of these entities recorded a growth of more than 100 percent.
All banks, except United Bank, have released their nine months ending September 2005 results. Profitability of the local banks clearly outperformed that of the foreign banks during this period.
"We have analysed the results of the complete banking sector during this period and found out that nationalised (govt.-owned) banks and private banks are almost head to head in the fight for profitability growth whereas foreign banks are lagging behind," Faisal Jiwani, research analyst from Investcapital Securities in a report said.
THERE ARE FOUR NATIONALISED BANKS IN THE COUNTRY, WHICH ARE: National Bank, Bank of Punjab, First Women Bank and Bank of Khyber. We have included three major banks in our sample leaving out First Women Bank.
Private banks consist of 20 entities of which only one has been left out being United Bank, which has not released its results yet. Out of the 11 foreign banks operating in the country, we have included eight banks leaving out Al-Baraka Islamic Bank, Bank of Tokyo, and Deutsche bank.
Nationalised banks'' profitability jumped up by 102 percent from Rs 5.4 billion during Jan-Sep 2004 to Rs 11.0 billion in Jan-Sep 2005. Out of the three banks, the most growth was shown by the biggest of them all, NBP, whose profitability grew by a staggering 107 percent, whereby the Bank of Punjab followed, growing its profitability by 90 percent and Bank of Khyber growing its profitability by 54 percent. National Bank made up 79 percent of the total profit of the nationalised banks against 18 percent that of BoP and two percent of Bank of Khyber.
Coincidentally, the profit of local banks in the country also grew by 102 percent during 9M2005 compared to 9M2004. The profit figure of these companies totalled Rs 24 billion in 9M2005 compared to Rs 12 billion in 9M2004. Major contributor to this profit were Habib Bank with a profit after tax of Rs 5.9 billion making up 24 percent of the total, closely followed by MCB Bank with Rs 5.3 billion in the bottom line making 22 percent.
Faysal Bank held the third largest share of the profitability with 10 percent share. Habib Bank and Faysal bank saw their share declining in the period whereas MCB Bank increased its share from 16 percent to 22 percent. Another point to note in the private banks is that Allied Bank had a loss in 9M2004, and a profit of Rs 2 billion in 9M2005, which in effect increases the impact of profitability growth. Taking ABL out of the analysis, we would have a growth of 84 percent in private banks'' profitability.
Foreign Banks showed a profit of Rs 4.9 billion in 9M2005 compared to Rs 4.5 billion in 9M2004. This spells a growth of 9.4 percent YoY. One reason behind this slow growth is that a major foreign bank, namely Citibank, had a negative tax provisioning in 9M2004. If this hadn''t been done, the growth in profitability of foreign banks would have been around 40-43 percent. The main shareholders of the profit in this category were Standard Chartered with 49 percent contribution to the total profit, Citibank with 23 percent and ABN Amro with 17 percent of the total Rs 4.9 billion profit.
Muhammad Imran, research analyst from Jahangir Siddiqui Capital Markets Ltd, said that the listed banks'' profitability soared because of growth in bank''s advances which was further augmented by the rising spread.
Bank as a whole distributed Rs 214 billion as advances in 9 months 2005. This quantum of advances was slightly less than the credit disbursed in the corresponding period of last year but the thing, which augmented the profitability during 2005, was the rising spread of the sector during 9 months of 2005.
The average spread of the sector in this time period was 600 basis points and in 3Q2005 it was recorded as 700 basis points whereas in the year 2004 average spread of the sector for first 9 months was 378 basis points.
Over 200 basis points increase in the spread is the main reason behind the surging profitability of the bank.
"We expect the profitability of the sector to grow in coming years as well," Imran said. "Although we are of the opinion that the spread of the sector will squeeze in future but the overall growth in advances is expected to derive the net interest income of the banks in year to come. We expect the sector''s profitability for next couple of year to grow by 25-30 percent annually where the net interest income and Fee-based income of the banks will drive the profitability growth," he said.
All the three categories combined show a profit after tax of Rs 40.2 billion in 9M2005 compared to Rs 22.0 billion in 9M2004, showing a growth of 83 percent. Nationalised banks held 27.3 percent of the pie, where private banks held 60.4 percent and foreign banks held 12.3 percent share.
FOLLOWING ARE THE PROFIT NUMBER IN BILLIONS OF RUPEES:
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9M2004 9M2005 growth
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Nationalised 5.43 10.97 102pc
Private 12.04 24.28 102pc
Foreign 4.51 4.94 9pc
Total 21.98 40.19 83pc
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