Rs22.6 billion is the profit of large banks for the January-March quarter of the current year. PHOTO: FILE
Faysal Bank has posted a net profit of Rs431.9 million for January-March, up 64.3% on a year-on-year basis, according to a notice sent to the Karachi Stock Exchange (KSE) on Friday.
Net interest income of Faysal Bank amounted to Rs3.3 billion for the quarter after it increased 44.9% compared with the corresponding quarter of 2013. Total non-interest income increased only 2.4% to a little over Rs1 billion during the quarter under review.
Although Faysal Bank performed well during 2013 – with its yearly profit going up 30.2% to Rs1.8 billion – the overall profitability of the banking sector remained subdued last year.
However, the trend seems to have shifted in the first quarter of 2014, with improved profitability of a majority of banks due to higher net interest income, falling provisions against bad loans and improved non-interest income.
According to a research note issued by Topline Securities on Friday, signs of improvement in the banking sector have started to emerge, as profits of all listed banks increased by 17% on a yearly basis to Rs32.4 billion in the first quarter of 2014. Profits of large banks (Allied Bank, Habib Bank, MCB Bank, National Bank and United Bank) have increased 12% year-on-year in the January-March quarter to Rs22.6 billion.
Although banking spreads decreased to a nine-year low in the first quarter of 2014, overall growth in banking deposits and assets resulted in a 10% year-on-year growth in net interest income of listed banks to Rs78 billion in January-March.
Similarly, non-interest income, which contributes 18% to the total revenues of banks, clocked up at Rs34.5 billion after increasing at 23% on an annual basis on the back of strong fee income, income from foreign exchange operations and capital gains.
Topline Securities Research Analyst Zeeshan Afzal attributes the improvement in the asset quality of commercial banks to rising corporate profitability and improved investors’ confidence. For example, listed banks’ provisions against bad loans in the January-March quarter declined 43% year-on-year to Rs1.6 billion, he noted.
“On a quarter-on-quarter basis, provision expenses declined by a massive 83% mainly due to National Bank’s Rs5.2 billion provisions in the last quarter of 2013. A similar trend was witnessed for large banks whose provisions against bad loans fell by 57% on an annual basis and 87% on a quarterly basis to Rs624 million,” he added.
As for the banking sector’s outlook for the remaining three quarters of 2014, Afzal said net interest income and interest margins of commercial banks are likely to get support from their recent interest in high-yielding longer tenure bonds, rising credit growth and improving asset quality.
Local banks and other investors have invested Rs1.4 trillion through Pakistan Investment Bonds auctions since the beginning of the year. “This alone can increase banks’ earnings by Rs13-15 billion (11-13%),” he added.
Published in The Express Tribune, May 3rd, 2014.
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