The banking sector's strong fundamentals were
evident from higher credit off-take and widening interest margins.
Though State Bank has raised interest rates steadily during the first
8 months of the current financial year, the monetary policy remained
accommodative. The weighted average lending rates remained negative in
real terms and private sector credit rose by a record Rs322.5 billion
during the period.
Advances during the first two months of 2005
portray a 4.2% growth. Private sector credit has picked-up
considerably during 2004-05 with full year disbursements expected at
The private sector credit increased by Rs291.4
billion during the first eight months of the current financial year.
The figure is sharply higher as compared even to the exceptional
growth of Rs221.2 billion during the same period last fiscal year.
Increase in credit expansion to the private sector
is witnessed during the current financial year despite a gradual rise
in interest rates which also testifies to the growth momentum of
In fact, the increased business confidence is also
evident in the continuing strength in credit extended for both fixed
investment and working capital. The credit extended for fixed
investment was only a little lower than in the corresponding period.
The textile sector which covers 33 percent of large scale
manufacturing sector accounted for the bulk of the credit off-take.
This reflects the industry efforts to benefit from the available
financial resources. Meanwhile, substantial fixed investment loans
have also seen extended to the cement, construction, transport and
The sharp 108.3 percent YoY rise in working capital
requirement reflects both increased capacity utilization and the
impact over addition of new capacities. A significant part of the
increase in working capital credit has been from sectors that had not
participated significantly in credit off-take during the preceding
As far as the distribution of credit is concerned,
the manufacturing sector was the major recipient for the credit
receiving 44 percent of net credit expansion during the year followed
by the consumer sector 18 percent. Within the consumer sector,
automobile and housing finance were the major beneficiaries.
A bank-wise distribution of credit show that most
of the credit requirements were financed through private domestic
banks which comes to 67 percent of the total credit off-take.
According to official figures released by the central bank, at the end
of January 2005, domestic banks were operating with 86.3 percent
credit to deposit ratio.
THE PERFORMANCE OF THE BANKS AT A GLANCE
Muslim Commercial Bank's (MCB) recently announced
FY04 financial results portrayed a 13.9% growth in earnings to
Rs2.54bn as against Rs2.23bn during the preceding year. During the
year, the bank declared two interim cash dividends at 10% and 15%
respectively. Along with the full year results, MCB also announced 10%
final bonus payout as well as 15% right shares at a premium of
Rs15/share. Diluted EPS for FY04 stood at Rs6.85 compared to Rs6.01
MCB's net interest income after provisions improves
by 5.3% to Rs7.01bn as against Rs6.66bn during 2003. Interest earned
declined 10% to Rs9.35bn. However, spreads improved notably reflected
by the 30% decline in interest expensed to Rs2.05bn. Provisions
against loans and advances showed a massive 37% decrease to Rs443m.
Free-based income of MCB soared 81% to Rs1.89bn. FY04 profitability
was also boosted on the back of tax refunds amounting to Rs514m.
The balance sheet items of MCB also showed firm
growth. Advances soared by 41.7% to Rs137.3bn compared to Rs97.2bn at
the end of 2003. Deposits too showed steady growth to Rs219bn, 4%
higher compared to the previous year. Investments on the other hand
declined by 48%. Among other things, this reflects the major decline
in MCB's holding of government securities.
As on December 2004, the bank's investments in
Treasury Bills and PIBs declined by 52% and 70% respectively to Rs42.5
billion and Rs7.2 billion respectively.
Outlook for MCB stocks in the stock market is
positive on the combined effect of higher credit expansion,
substantial increase in business volumes and mobilization of cost