The banks in Pakistan are in a win-win position following the banking reforms. This observation is made by PIDE Business Barometer released last week. The Business Barometer, a new six monthly series of research study, speaks of country's significant growth of banks in respect of deposits, advances, interest rate, investment and employment.
The study is based on the assessment of economic performance by firms and banks, listed on the Karachi Stock Exchange in July 2007, and also speaks of their expectations in the second half of the calendar year.
It also includes on analytical comparison of the findings of previous barometer published in January 2008, relating to July-December, 2006. The PIDE Barometer mainly deals with big firm assessment of economic performance, inflation and expectations for the next six months.
THE STATE OF BANKS:
Production is Increasing: During January-June 2007, 81.8 percent banks had a higher level of volume of deposits and advances as compared to the second half of 2006.
In terms of the plans for the coming months, 63.6 percent responded their volume of deposits and advances to rise, 27.3 percent expected the same level, and 9.1 percent expected a fall in their production. Most of the banks have expanded their activity during the first half of the year 2007.
Seventy five percent of the banks indicated that their activity in the domestic market during the first six months of 2007 was higher than in the previous half of 2006. Interestingly, none of the banks recorded a decrease its activities. The majority of banks (69.2 percent) are expecting that their activities in the domestic market would increase in the next six months of 2007.
The optimistic expectations of the banks remain uniform for the second half of 2007. This can be attributed to the recent reform in the money laundering laws curbing malpractice like Hundi and increasing in the inflow of remittances through bank channels, says the PIDE Barometer.
Capacity Utilisation: Only 18.2 percent of the banks reported that their capacity utilisation was approaching the full capacity. Interestingly, for the second half of 2007, 55.6 percent of the banks are expecting that their capacity utilisation will approach full capacity.
INFLATIONARY EXPECTATIONS REMAIN ROBUST:
Inflation: About 92.3 percent of the banks indicated that during the last six months, the general price level has increased as compared to that in the last half of the year 2006. For the second half of the year 2007, 69.2 percent are anticipating an increase in the general price level, 30.8 percent are expecting it to be the same, while none of the banks is anticipating a fall in the general price level. These expectations are in the line with the upward movement of the expected interest rate and wages in the banking sector.
Higher Investment: The majority of the banks, 72.7 percent, increased their investment in the first half of 2007 as compared to the second half of 2006.
For the second half of 2007, 58.3 percent are anticipating an increase in investment. This is in contrast to the non-banking firms, where the majority is anticipating the same level of investment in the second half of 2007.
Higher Current and expected Employment: Most of the banks (58.3 percent) reported an increase in the employment level in the first half of 2007 as against the last half of 2006.