FINANCE

 
1- INTEREST RATES AND THE GROWING CREDIT MARKET
2-
CORPORATE CREDIT ASSESSMENT
 

INTEREST RATES AND THE GROWING CREDIT MARKET

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Banking sector posts handsome earnings during first half of 2004-05

By AMANULLAH BASHAR
 Apr 04 - 10, 2005
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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 Rs350billion.

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 economy.

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 telecommunication sectors.

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 years.

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

MCB

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 last year.

 

 

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 effective funds.