Pakistani banks’ profits have gone through the roof while the economy still stays slow to pick up. The latest profit reports for the first quarter of 2015 showed banks’ profits recorded a historic high of 58%, totaling Rs 80 billion ($786.7 million) compared to the similar period of 2014.
The asset base of the banking system was up 3.5%, or Rs 422 billion, to reach a total of Rs 12.5 trillion. The increase came on the back of the banks’ larger investment in government bonds and securities. The credit advances recorded a net retirement “primarily due to the seasonal adjustments and drop in commodity prices,” AAP reported.
The liquidity of the banking system remained at “a comfortable level: with “a continuing accumulation of huge stocks of liquid assets in the form of government securities,” State Bank of Pakistan, the central bank, said in its quarterly review of the banking sector for January-March 2015. But the SBP also cautioned about the quality of assets, which it said, “slightly deteriorated”.
The ratio of non-performing loans to gross loans increased by 50 basis points to 12.8%. The ratio of NPLs to net losses rose by nine basis points to 2.8% in Q1.
But with the increase in the capital base during the quarter, capital impairment ratio (net NPLs to capital) was down 27bps to 9.8%, which means “declining risk to the future earnings and equity of the banking system.”
The return on assets rose 2.6% from 1.9% in Q1 of CY-15 as compared to the same quarter of CY-14. The smaller bank are doing fine in terms of earnings and sometime even doing better than the large ones.
National Bank of Pakistan, Habib Bank, United Bank, MCB Bank and Allied Bank earned a profit after tax of Rs 111.892 billion, up 32% in the whole of 2014 when compared to their CY-13 profit of Rs 84.708 billion. As the banks lent more and more to the government rather than the private sector, their overall amount of NPL came down.
Their provisioning for NPLs has also come down by 39% to Rs 1.2 billion as compared to Rs 2.2 billion, respectively for full year 2014 and 2013.
Ironically, these high profits accrued from commercial banks’ huge lending to the cash-starved government, which is facing growing budgetary deficits even after claims of “positive performance” made by Finance Minister Ishaq Dar. While the commercial banks were gleefully lending to the government at high rates and with sovereign guarantees, the private sector -industry, business and the foreign trade segments of the economy were cash-starved for working capital, renewal and upgrading of old machinery. As of now, out of the banks’ total lending, credit to government mounts to 90%. It is 43% of their total assets.
