The banking sector’s decline in profitability continues, as three more banks reported lower earnings for the first quarter of 2013, a reflection that few, if any, financial institutions will be able to escape the combined effect of lower interest rates and rising deposit costs.
Allied Bank, Bank Alfalah and Bank AL Habib announced their first quarter earnings on Wednesday and all three reported declining revenues and profits, largely due to the banks’ net interest margins being squeezed. The net interest margin is the difference between the average interest rate that the banks charge their borrowers and the average rate that they pay out to their depositors.
Bank Alfalah seems to have been particularly badly hit, with the cumulative impact of lower interest rates and higher deposit costs causing its spread to drop by a worrying 17.7% during the first quarter of 2013 compared to the same period in the previous year. Total revenues for the bank – defined as net interest income plus all non-interest-based income – declined by nearly 7% to Rs5.7 billion for the quarter, compared to Rs6.1 billion in the same period last year.
The decline would have been worse, had the bank not made a significant profit through its proprietary trading activities. Non-interest income rose by 27.4% to Rs1.9 billion during the first quarter, boosted largely by a Rs319 million profit from the bank trading on its equity and fixed income books. Nonetheless, total profits were down by nearly 16% to Rs1 billion for the quarter.
The decline at Allied Bank appears to have somewhat more modest. Total revenues declined by 3.4% to Rs7.6 billion for the first quarter of 2013 compared to the same period last year. Unlike most of the other major banks, Allied actually saw its net interest income increase by a modest 2.9%. While it faced higher deposit costs, the bank appears to have been able to increase its interest income at a slightly faster pace.
Lower dividends from its subsidiaries, however, caused non-interest income for the bank to go down by about 13.7% to Rs2.6 billion for the quarter. Consolidated net income declined by about 7.8% to Rs2.9 billion, compared to Rs3.1 billion in the same period last year.
Bank AL Habib’s problem appears to be the inverse of that of Allied Bank: its loyal customer base ensured that its cost of deposits actually went down by 9.3% during the first quarter of 2013. However, since many of its borrowers are normally seek short-term trade financing, it is more exposed to declines in interest rates. Interest income for the bank declined by 8.1%, which caused net interest income to go down by about 6% for the quarter.
Total revenues at Bank AL Habib declined by a more modest 2.5% to Rs4.3 billion during the first quarter of 2013, rescued in larger part by higher fee income and higher revenues from proprietary trading. Those lower revenues resulted in profits also going down by about 4.5% to Rs1.2 billion during the first quarter.
Jubilee Life Insurance
Profit after tax (three-month period ended March 31, 2013): Rs224.75m.
Up from Rs193.78m for the corresponding period last year. Steady increase in almost all sources of income. No cash dividend or bonus shares declared yet.
Profit after tax (for nine-month period ended March 31, 2013): Rs919.35m, up from a loss of Rs89.65m for the corresponding period last year.
However, three-month period ended March 31 witnessed a loss of Rs287.19m compared to a profit of Rs250.59m last year.
Profit after tax (for three-month period ended March 31, 2013): Rs330.14m, up from Rs164.10m for the same period last year.
An almost doubling of administrative expenses was cancelled out by revenues from increased sales and a fall in finance costs.
Profit after tax (for nine-month period ended March 31, 2013): Rs2.06b, up from Rs1.42b for corresponding period last year.
Profit for quarter ended March 31, 2013 was Rs723.68m, up from Rs571.69m last year. Despite slight fall in operating profit, drop in finance costs brought up profits before tax.
Published in The Express Tribune, April 25th, 2013.
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