Local banks absorb global shocks

[LRE]

Local banks absorb global shocks



By Shahid Iqbal


KARACHI, Feb 16: The banking sector in Pakistan appears to have absorbed global shocks as banks here showed a better performance than the developed economies, which have a deep-rooted banking system, with giant banks.

Bankers and analysts having inside information about banking performance during the first three quarters of 2008 said most of the banks would come out successfully from the global financial meltdown.

Unlike the banking sector in most of the countries hit by global recession and facing slowdown of economic growth, the annual results of the strongest MCB Bank released on Monday demonstrated the trend in Pakistan.

The bank reported gross profit of Rs21.9 billion for the year ended Dec 31, 2008. It announced a 25 per cent cash dividend and 10 per cent bonus shares which pushed earnings per share (eps) to Rs24.47.

Bankers said that the net interest income of most of the banks increased because of high interest rate and higher banking spread.

“The net interest income of the MCB Bank was recorded at Rs28.5 billion which is significant as it is 19 per cent more than Rs23.9 billion recorded in 2007, mainly due to high interest margins,” said Farhan Rizvi, a researcher at the JS Securities. In contrast, non-interest income of the bank declined by 10 per cent to Rs5.8 billion from Rs6.5 billion in the same period last year.

In a statement, the bank said that its profit-after-tax for 2008 came to Rs15.4 billion (than Rs15.3 billion in 2007), deposits grew by 13 per cent which closed at Rs330 billion whereas gross advances increased by 19 per cent and ended with Rs273 billion.“Advance of the banking industry grew by 18 per cent during last year which helped banks earn profits despite slowdown in economic growth,” said Mohammad Imran, head of research at the First Capital Equities.

Advances of banks were higher because public sector entities borrowed heavily. Public sector borrowings were at Rs58 billion in 2008.

He said, like MCB, Habib Bank, is also expected to announce net earnings of Rs12.8 billion (eps Rs16.9) in full year 2008, an overwhelming growth of 60 per cent over last year.

Last year the bank’s earnings were lower by 33 per cent due to abnormal provisions of Rs8.2 billion on account of non- performing loans in the aftermath of State Bank’s withdrawal of benefits of forced sales value (FSV) of assets on collateral of loan.

The reason behind the growth would be the expected absence of huge provisioning expense in the books of the bank.

Farhan Rizvi sighted higher administrative expenses of the MCB Bank.

“Despite showing net interest income, the earnings growth suffered due to a combination of higher administrative expenses and rising provisions for non-performing loans,” said Mr Rizvi.

He said due to lower gains on pension fund, the bank’s administrative expenses rose by massive 40 per cent to Rs8.4 billion as against Rs6.0 billion recorded in 2007.

Moreover, provisions and write-offs surged by 32 per cent to Rs4 billion versus Rs3.1 billion previously.

The meltdown of the financial system in developed economies is still not over and giant banks, like Citibank, Barclays, RBS, etc., were the target of the failing system for which US and European governments either injected billions of dollars or bought toxic assets. Even governments bought majority stakes in banks, like RBS, to support the failing banking system.

http://www.dawn.com/2009/02/17/ebr1.htm