The banking sector is in the peak of profitability since 9/11. The pre-tax profit of the commercial Banks [C.B.s] in 2006 amounted to Rs 123.5 billion which depicted an increase of 30.1 per cent over the pre-tax profit of 2005. The audited annual reports of the Banks are usually issued in/after March each year.
However, the 9 months [January-September,2007] results are available and an endeavour has been made in this write up to assess the performance of the CBs on the basis of 9 moths' results of large banks ie National Bank of Pakistan (NBP), Habib Bank Ltd (HBL), United Bank Ltd (UBL), MCB Bank Ltd (MCB) and Allied bank Ltd (ABL). As these large banks share approximately 56-58 per cent of the CBs' banking business and 68 per cent of profits, the working so made will be fairly reasonable.
Table "A" containing the important indicators of the commercial banking is appended. Let us commence with the profitability. As mentioned earlier, CB's 2006 profit increased by 30 percent over their 2005 profit. In 2007, the increase may be much less than that. It is estimated that the 2007 pre-tax profit will show an increase of approximately 13.5 percent. Thus the cumulative pre-tax profit of CBs may stand @ Rs 140 billion or so.
State Bank of Pakistan [SBP] has instructed the banks that with a view to cleansing their balance sheets, they should make provisions to the extent of cent per cent of their non-performing loans [NPLs] and to that end, the amount of forced sale value [FSV] of the assets pledged against the loans has not been allowed to be deducted from the NPLs as was permissible earlier.
The end September,2007 data indicates that as against the NPLs amounting to Rs 164.036 billion, provisions existed to the extent of Rs 133.855 billion. This will require additional provisioning of Rs 30 billion [or slightly more when NPLs figure as of end-December,2007 become available] which will reduce the pre-tax profit of the CBs to about Rs 110 billion which is also quite a huge amount.
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Table "A" Comparative study of Large banks' operations in 2007.[ Figures in Rs billion ]
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Head NBP HBL UBL MCB ABL Total Total of all Ratio
[2 to 6] Commercial between
banks. 7&8
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1 2 3 4 5 6 7 8 9
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A. Pre-tax profit 2006 26.311 18.840 14.292 18.501 6.661 84.605 123.5 68.50 %
B. Pre-tax profit -
Jan-September 2007 22.180 16.103 11.057 16.381 6.325 72.046 - -
C.Annualised* 29.573 21.471 14.743 21.841 8.433 96.061 - -
D. Change C/A + 12.40 +13.96 +3.16 +18.05 +26.60 +13.54 - -
% % % % % % - -
E.Deposits 31/12/2006 501.872 459.140 335.078 257.462 206.031 1759.583 2987.217 58.90%
F.Deposits 30/09/2007 522.929 528.067 380.752 287.922 233.835 1953.505 3452.612 56.58 %
G. Change [ F-E] 21.057 68.927 45.674 30.460 27.804 193.92 465.395 -
4.20% 15.01% 13.63% 11.83% 13.49% 11.02% 15.58% -
H. Advances
31/12/2006 316.110 349.433 247.310 198.239 144.034 1255.126 2215.616 56.64%
J. Advances
30/09/2007 320.466 345.646 279.902 190.524 143.491 1280.029 2245.192 57.01%
K.Change [ J-H] 4.356 -3.787 32.592 -7.715 -0.543 24.903 29.576 -
1.38% -1.08% 13.18% -3.89% -0.377% 1.98% 1.33% -
L.Advance/deposit
ratio 31/12/2006 62.99% 76.11% 73.81% 77.00% 69.91% 71.33% 74.17% -
M.Advance/deposit
ratio 30/09/2007 61.28% 65.46% 73.51% 66.17% 61.36% 65.52% 65.03% -
N.Investment 31/12/2006 139.947 119.587 67.260 63.486 46.953 437.233 - -
P. Investment
30/09/2007 180.280 186.701 116.228 123.318 79.923 686.450 - -
Q. Change
P-N 40.333 67.114 48.968 59.832 32.970 249.217 - -
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-- Annualised for 2007 on the basis of January-September,2007 results. Source: Quarterly reports of the individual banks. The figures of advances are net of provisions for non-performing loans. The cumulative figures of all banks (column 8 ) taken from "Press Communique" posted on SBP website/ SBP Banking Sector Review.
An examination of the 9 months' results indicate that the increase in [2007] pre-tax profit of NBP/HBL will be around 13 per cent while the MCB and ABL will top the list with 18 and 26 per cent respectively. The UBL will remain at lowest level in the matter of increase in the profitability @ 3-4 per cent.
A noteworthy feature is that in January-September 2007, the focus of the large banks has been more on the "investment" than lending. NBP/HBL increased their Market Treasury Bills stock by Rs 39.237 billion and 64.035 billion as against the deposits of Rs 21.057 billion and Rs 68.927 billion respectively mobilised by them. Table "B" containing major ingredients of banks' incomes is appended."
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Table "B" Net interest income/non interest income of Large Banks.
[Figures in Rs billion]
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Banks Net interest income Increase
January-September,2006 January-September,2007 [2-3]
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1 2 3 4
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NBP 21,720 24.536 2.816-12.96%
HBL 22.585 22.982 0.397-1.76%
UBL 15.238 18.092 2.854-18.73%
MCB 15.511 17.938 2.427-15.64%
ABL 7.919 8.680 0.761-9.61%
TOTAL 82.973 92.228 9.255-11.15%
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Non-interest income.
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NBP 9.000 8.853 -0.147* [- 1.63%]
HBL 5.119 7.147 2.028 [39.61%]
UBL 4.649 6.379 1.73 [37.21% ]
MCB 3,661 4.744 1.083 [29.58%]
ABL 1.826 2.804 0.978 [53.55%]
Total 24.255 29.927 5.672 [23.38%]
* decrease.
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The net interest income of large banks during first 9 months of 2007 has increased by 11.15 per cent over the corresponding period of the previous year. The non-interest income has, however, increased by 23.38 per cent with the exception of NBP in which case there has been a decrease. A sizeable portion of increase in HBL's/ ABL's non-interest income is on account of gain on sale of investment and sale/purchase of securities-[HBL 1.703 billion out of Rs 7.147 billion and ABL Rs 956 million out of Rs 2.805 billion.
DEPOSITS: The deposits of CBs collectively increased by Rs 465.395 billion [15.58 per cent] during January-September, 2007. The deposits of the large banks, however, increased by Rs 193.92 billion [11.02 percent]. The ratio of large banks' deposits in the overall deposits of CBs which stood at 58.9 percent [31-12-2006] came down to Rs 56.58 percent [30-09-2007].
This means that the smaller domestic banks do need and are also making efforts to mobilise new deposits. What does this further reflect? The large banks do not feel the need of and are also not making efforts for mobilising fresh deposits. And, this is perhaps the reason that the deposit rates offered by the large banks are at the lowest ebb while one sees better interest rates from the small banks.
LENDING: The cumulative amount of outstanding advances of CBs which stood at Rs 2215.616 billion as on the 31st December, 2006 increased to Rs 2245.192 billion as on the 30th September, 2007 reflecting an increase of merely 1.33 per cent. The amount of outstanding advances of the large banks increased from Rs 1255.126 billion to Rs 1280.029 billion during this period reflecting an increase of 1.98 percent. This reflects only the marginal increase in the lending by the banking community as a whole.
The advances/deposits ratio of the large banks fell from 71.33 per cent to 65.52 per cent during the period under review while that of CBs (collectively) fell from 74.17 per cent to 65.03 per cent.
Coming to large banks individually, HBL, MCB, and ABL were the biggest losers as their respective advances/deposits ratio fell from 76.11, 77 and 69.91 percent (31-12-2006) to 65.46, 66.17 percent and 61.63 percent (30-09-2007). The NBP and UBL were successful in maintaining the ratio as in their case, it fell marginally.
As for absolute amounts of advances, increase (+)/decrease (-) as on 30-9-2007 as compared to 31-12-2006 are as under : NPB (+) Rs 4.356 billion [1.38 per cent], HBL (-) Rs 3.787 billion [1.08 per cent], UBL (+) Rs 32.592 [13.18 per cent], MCB (-) Rs 7.715 billion [3.89 per cent] and ABL (-) 0.543 billion [0.377 per cent]. It seems that the banking sector's focus was more on "investment" and security trading than lending.
EXPENDITURE SIDE: The Table "C" containing the details of the administrative expenditure during January-September, 2007 is appended:
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Table "C" Administrative expenses of Large Banks. [Figures in Rs billion]
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Banks Administrative expenditure. Difference
January-September,2006 January-September,2007 [2-3]
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1 2 3 4
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NBP 9.326 10.413 +1.087- [+11.65%]
HBL 13.141 12.903 -0.238- [-1.811%]
UBL 7.570 9.680 +2.110 [+27.87%]
MCB 5.746 4.558 - 1.188 [-20.67 %]
ABL 3.731 4.436 +0.705 [+18.90%]
Total 39.514 41.990 +2.476 [+ 6.27%]
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