Banking sector profits grow 17%

KARACHI: The banking sector’s profits rose by 17 per cent in 2010 driven by lower loan losses and higher net interest income.

JS Global Capital reviewed the results of 13 banks, accounting for 89 per cent of the sector’s market capitalisation, and said cumulative profits of banks increased to Rs74.4 billion in 2010 from Rs63.5 billion in 2009.

Net interest income jumps

The rise of 10 per cent in net interest income to Rs221.7 billion was primarily driven by rising Karachi Inter-bank Offered Rate (Kibor) during the second half of the year and growth in earning assets, particularly investments, said JS Global Capital analyst Mustufa Bilwani.

This was further aided by strong spreads, which averaged at 7.46 per cent in 2010. Amongst big banks, Allied Bank Limited and National Bank of Pakistan (NBP) led the growth with 21 per cent and 15 per cent, respectively. Samba Bank, up 67 per cent and Summit Bank, up 26 per cent remained the top performers amongst smaller banks.

Loan losses drop

Lower buildup, combined with relatively higher coverage ratios, kept loan losses down by 23 per cent in 2010. Substantial declines were witnessed amongst larger banks as provisioning expenses of MCB Bank, NBP and United Bank Limited declined by 47 per cent, 37 per cent and 29 per cent, respectively, in 2010. Only two of 13 banks, Habib Metropolitan Bank and Soneri Bank, reported a rise under this head.

Non-interest income flat despite rise in fee income

Non-interest income remained flat at Rs60 billion as higher fee income was partly offset by lower income from dealings in foreign currencies.

Fee income rose by a cumulative nine per cent to Rs33.1 billion for the banks. However, income from dealing in foreign currencies remained lower as rupee-dollar parity remained moderately steady, depreciating by a mere two per cent in 2010 compared with an average 10 per cent in the previous three years.

Published in The Express Tribune, March 3^rd, 2011.