COMMERCIAL BANKS

While there has been persistent and substantial increase in deposits, the credit off take has remained comparatively low

By SHABBIR H. KAZMI
Apr 28 - May 04, 2003
 

Commercial banks operating in Pakistan are going through a transitory period. Avoiding the transition is not possible. The factors responsible for gradual but profound change are growing liquidity, declining interest rates and shrinking spreads. In the past, the GoP was the biggest borrower but after 9/11 not only the quantum of its borrowing has reduced but the yield on government securities has also came down drastically. Till couple of years back government securities were the biggest source of earnings for most of the commercial banks. In the absence of corresponding growth in private sector demand for credit, banks have no option but to explore new business potentials to resist decline in their profitability.

The banking sector is experiencing drastic changes forcing the players to redefine their strategies. State Bank of Pakistan continues to update and amend its regulations and instructions to enable the commercial banks to improve their solvency and to enhance their capital strength and competitive capabilities. The central bank has opened new business opportunities by eliminating certain restrictions. Now banks are allowed to implement their own credit policies. They enjoy more freedom to tap many segments of the market, which were previously unexplored.

The consumer banking activities has enhanced as many players are coming up with branded products. The competition in this area has intensified as larger banks continue to play a significant role by improving the quality of products and services they offer. New players have joined them with innovative solutions and new services benchmarks. Competition in this area is expected to get fiercer. The winners will be those who could excel in customer services, improve quality of products and continue innovations.

Local banks are posing a bigger challenge to foreign banks. Larger banks, having the advantage of greater reach, are threatening the existence of smaller banks. Larger banks have adopted a more aggressive but accommodating approach by focusing on client needs, improving response time and increasing use of technology. Many banks have started exploring rural areas with special focus on advances to agriculture sector and related activities.

STATE OF ECONOMY

Before looking into the performance of commercial banks operating in Pakistan, it is necessary to keep in mind the geopolitical conditions in the region, the adverse impact of 9/11 and subsequent events to which Pakistan could not remain immune. After the 9/11 the world plunged into 'synchronized global recession' affecting even the most developed economies. As against them Pakistan's economy was very fragile and was suffering from a number of structural problems, external debt crisis being the most contentious one. However, in the post 9/11 era, the external debt issue has been resolved to a large extent, easing the debt servicing pressure. Influx of fresh aid and grants and reduced debt servicing requirements enabled the country to accumulate foreign exchange reserves. On top of every thing, exceptionally large inflow of remittances has been the major reason. Pakistan succeeded in accumulating nearly US$ 10 billion by December end 2002. The SBP's buying of foreign exchange from the kerb market, in an attempt to avoid massive appreciation of rupee against dollar, also helped in building foreign exchange reserves.

BANKING SECTOR

Commercial banks operating in the country can be divided into four distinct categories, private banks, foreign banks, privatized banks and nationalized commercial banks (NCBs). The number of private banks has remained almost constant ever since they commenced operations in early nineties, with the exception of Indus Bank that is under liquidation. However, ownership of a number of private banks has changed over the years. Lately, with the take over of Prudential Bank and Platinum Bank by the new sponsors their names were changed to Saudi Pak Commercial Bank and KASB Bank respectively. Earlier, ownership of Union Bank and Schon Commercial Bank changed. While the new sponsors of Union Bank preferred to continue with the same name, the buyers of Schon Commercial Bank changed its name to PICIC Commercial Bank.

Union Bank acquired the operation of Emirates Bank International (EBI) in Pakistan. The scheme of amalgamation was notified by the central bank on September 03, 2002 and Union Bank settled the amalgamation price of US$ 37 million on September 09, 2002. Union Bank had acquired Pakistan operations of Bank of America in year 2000 and American Express credit card business in Pakistan in year 2001.

In the NCBs category two banks Habib Bank and National Bank of Pakistan have been left after the privatization of United Bank. National Bank of Pakistan has been listed at local stock exchanges and part of its shares were off loaded. The GoP is actively pursuing the privatization of Habib Bank, through sale of its 26% shares along with transfer of management. The remaining shares of the GoP in Muslim Commercial Bank and Bank Alfalah were also sold. The GoP sold majority shares of Allied Bank of Pakistan in early nineties but has not been able to off load its remaining shares in the bank.

United Bank's privatization demands specific mention for two reasons, 1) it was the largest transaction and 2) a large part of sale proceeds was received in foreign exchange. The consortium comprising of Abu Dhabi Group and Bestway Group has acquired 51% shares of the bank along with management control. Since October 2002 the bank has been working under the new sponsors.

Meezan Bank was created as a result of merger of Al-Meezan Investment Bank and Societe Generale. The first ever license to operate as a Scheduled Islamic Commercial Bank was granted to Meezan Bank on January 31, 2002. Pakistan operations of Societe Generale were amalgamated into Meezan Bank on May 01, 2002. At the end of year 2002 it had six branches, three in Karachi and one each in Islamabad, Lahore and Faisalabad.

The number of foreign banks operating in Pakistan has been declining constantly since the GoP decided to freeze foreign currency accounts in May 1998. The total number of foreign banks in the country has reduced to half since the freezing of foreign currency accounts. The positive point is that most of the foreign banks were able to sell their Pakistan operations at attractive prices. Operations of ANZ Grindlays Bank have been fully amalgamated into Standard Chartered Bank as a result of global merger.

KEY PLAYERS

ASKARI COMMERCIAL BANK has posted Rs 687 million profit after tax for the year 2002 as compared to a profit of Rs 551 million for the previous year. The Board of Directors also announced 20% dividend and issue of 5% Bonus Shares subject to the approval of issue of Bonus Shares by the SECP. The bank had distributed 20% dividend among its shareholders for the year 2002 and also issued 5% Bonus Shares. The Bank transferred Rs 137 million to statutory reserve and Rs 284 million to revenue reserve. EPS improved from Rs 5.06 for the year 2001 to Rs 6.32 for the year 2002.

BANK AL HABIB has posted Rs 290 million profit after tax for the year 2002 as compared to a profit of Rs 246 million for the previous year but bid not announce any dividend. The Board of Directors has approved issue of 20% Bonus Shares. The bank had paid 5% dividend and also issued Bonus Shares at the end of year 2001. Though there was increase in total income, total expenditure also went up. Total income grew from Rs 1,090 million to Rs 1,383 million. Non-mark-up/interest expenses went up from Rs 539 million to Rs 763 million. EPS improved from Rs 2.84 for the year 2001 to Rs 3.35 for the year 2002.

BANK OF PUNJAB has posted Rs 284 million profit after tax for the year 2002 as compared to a profit of Rs 236 million for the previous year. The Board of Directors approved distribution of 17.5% dividend among the shareholders for the year 2002. The bank had distributed 15% dividend to its shareholders for the year 2001 and also issued Bonus Shares amounting to over Rs 24 million last year. The Bank transferred Rs 56.8 million to statutory reserve and Rs 50 million to general reserve. EPS improved from Rs 2.35 for the previous year to Rs 2.83 for the year 2002.

BOLAN BANK has posted Rs 3.7 million profit after tax for the year 2002 as compared to a profit of Rs 8.7 million for the previous year. EPS declined from Rs 0.17 for the year 2001 to Rs 0.07 for the year 2002. It is worth noting that profit before tax improved from Rs 10 million for year 2001 to Rs 24.7 for the year 2002. However, due to higher appropriation for tax for the year 2002, profit after tax declined substantially. Tax appropriation went up from Rs 1.3 million to slightly more than Rs 21 million.

FAYSAL BANK has posted Rs 656 million profit after tax for the year 2002 as compared to a profit of Rs 410 million for the previous year and also announced 17.5% dividend. It had distributed 10% dividend to its shareholders for the year 2001. The improvement in profit was driven by higher income, going up from Rs 1,489 million to Rs 1,877 million. There was decrease in fee-based income but increase in dividend income. Fee, commission and brokerage income went down from Rs 242 million to Rs 205 million. Dividend income grew from Rs 208 million to Rs 391 million. However, there was increase in non-mark up expenses, going up from Rs 534 million to Rs 622 million, mainly due to rise in administrative expenses. EPS improved from Rs 1.55 for the year 2001 to Rs 2.48 for the year 2002.

KASB BANK (formally Platinum Commercial Bank) has posted Rs 114 million loss after tax for the year ending December 31, 2002 as against a loss of Rs 67.5 million for the previous year. The results pertain to the operations under the previous management as the new sponsors took over the management in October 2002. The change in name was brought subsequent to the notification of the central bank dated February 21, 2002. It is expected that the combination of services which the bank will have access to will be unique. Once corporate reorganization is complete, the bank will have a majority stake in KASB Leasing and a 100% stake in Khadim Ali Shah Bukhari & Company (KASB). Hence, the client base at large will not only have access to commercial and consumer banking services, but to lease financing, equity and debt securities broking, investment banking and investment advice.

MEEZAN BANK has posted Rs 223 million profit after tax for the year 2002 as against a loss of about Rs 54 million for the previous year. However, it must be kept in mind that 2002 was the first year of operations as a full-fledged scheduled commercial bank. The total financing portfolio of the bank as on December 31, 2002 amounted to Rs 3.53 billion. As of the balance sheet date the bank did not have any overdue or defaulting accounts. The bank has introduced Islamic Export Refinance Scheme. This has, for the first time in Pakistan, enabled exporters to avail financing at concessional rates under a Shariah compliant scheme,

METROPOLITAN BANK has posted Rs 430 million profit after tax for the year 2002 as compared to a profit of Rs 335 million for the previous year and also announced 20% dividend. It did not distribute any dividend to its shareholders for the year 2001 but issued 25% Bonus Shares. The improvement in profit was driven mainly by higher income, going up from Rs 1,112 million to Rs 1,362 million. There was increase in fee-based income and dividend income. Fee, commission and brokerage income went up from Rs 168 million to Rs 235 million. Dividend income grew from Rs 1.7 million to Rs 11.4 million. However, there was increase in non-mark up expenses, going up from Rs 369 million to Rs 486 million, mainly due to rise in administrative expenses. EPS improved from Rs 3.35 for the year 2001 to Rs 4.30 for the year 2002.

MUSLIM COMMERCIAL BANK has posted Rs 1,739 million profit after tax for the year 2002 as compared to a profit of Rs 1,108 million for the previous year. This is the first year in the history of MCB and in the banking sector that two interim announcements were made, 10% Bonus Shares and 25% dividend besides 15% final Bonus Shares. Another achievement was that the bank did not make provision for diminution in the value of investment and also against non-performing loans and advances. However bed debts worth Rs 721 million were written off directly. Deposits went up from Rs 154.5 billion to Rs 182.7 billion. Advances grew from Rs 76.6 billion to Rs 78.9 billion. Value of investments went up from 55.4 billion to Rs 89.6 billion.

NATIONAL BANK OF PAKISTAN has posted Rs 6 billion profit before tax for the year 2002, a record profit in the history of banking sector in Pakistan. Profit after tax came to Rs 2.253 billion as against a profit of Rs 1.148 billion for the year 2001. The key factor behind this increase was no more amortization of deferred cost. The bank has made the final provision of Rs 2.7 billion against this head in year 2001. The Board of Directors approved payout of 12.5% dividend and issue of 10% Bonus Shares. The bank had also distributed 12.5% dividend for the year 2001.

PICIC COMMERCIAL BANK has posted Rs 319 million profit after tax for the year 2002 as compared to a profit of Rs 112 million for the previous year. The Board of Directors approved issue of 30% Bonus. The bank had not distributed any dividend to its shareholders but issued Bonus Shares amounting to Rs 125 million for the year 2001. The Bank transferred Rs 63.85 million to statutory reserve. EPS improved from Rs 1.78 for the year 2001 to Rs 4.30 for the year 2002. The bank opened 22 new branches during the year 2002 and has received permission to open another 22 branches during the year 2003.

PRIME COMMERCIAL BANK has posted Rs 176 million profit after tax for the year 2002 as compared to a profit of Rs 153 million for the previous year and also announced 10% dividend. The bank did not distribute any dividend to its shareholders for the year 2001. Total income went up from 603 million to Rs 822 million. However, there was increase in non-mark up expenses, going up from Rs 362 million to Rs 516 million, mainly due to the rise in administrative expenses. The factors contributing to higher profit were decline in provision against non-performing loans and advances, and increase in income/gains from trading in government securities. EPS improved from Rs 1.51 for the year 2001 to Rs 1.74 for the year 2002.

SAUDI PAK COMMERCIAL BANK achieved substantial growth during the year ending December 31, 2002. This remarkable performance was due to the enormous improvement in its corporate image. The bank posted Rs 202 million profit after tax for the year 2002 as against a loss of Rs 182 million for the previous year. Deposits increased by 156% to Rs 12,340 million and advances by 95% to Rs 9,753 million. The credit deposit ratio improved from 104% to 79%. Investments including lending to financial institutions also grew by 166% to Rs 7,410 million. The total asset base doubled, from Rs 9,513 million to Rs 19,617 million. Non-performing advances of Rs 640 million were regularized during the year. The ratio of performing advances to total advances improved markedly from 29% in year 2001 to 69% for the year 2002. However, a real concern for the investors is that the bank still carries accumulated losses of over Rs 811 million.

Soneri Bank has posted Rs 350 million profit after tax for the year 2002 as compared to a profit of Rs 270 million for the previous year and also announced 10% dividend. It did not distribute any dividend to its shareholders for the year 2001 but issued 30% Bonus Shares. The improvement in profit was driven by higher income, going up from Rs 915 million to Rs 1,073 million. There was increase in fee-based income but income from dealing in foreign currencies decreased. Fee, commission and brokerage income went up from Rs 111 million to Rs 133 million. Income from dealing in foreign currencies came down from Rs 348 million to Rs 184 million. Other income grew from Rs 77 million to Rs 175 million. However, there was increase in non-mark up expenses, going up from Rs 364 million to Rs 452 million, mainly due to rise in administrative expenses. EPS went up from Rs 2.66 for the year 2001 to Rs 3.44 for the year 2002.

UNION BANK has posted Rs 286 million profit before tax for the year 2002 as compared to a profit of Rs 9 million for the previous year. The bank posted Rs 286 million profit before tax for the year 2002 but an appropriation of Rs 122.5 million reduced profit after tax to Rs 163 million. The Board of Directors did not approve distribution of dividend. EPS improved from Rs 0.43 for the year 2001 to Rs 1.34 for the year 2002. The bank is following an aggressive marketing strategy well supported by investment in technology. This has resulted in heavy administrative expenses, going up from Rs 1,056 million to Rs 1,591 million.

UNITED BANK has posted Rs 1,414 million profit after tax for the year 2002 as compared to a loss of Rs 7,478 million for the previous year. The loss for year 2001 was mainly due to an extraordinary item amounting to Rs 7,200 million. The increase in profit of the bank can be attributed to higher income, lower provision against non-performing loans and lower appropriation for tax. Total income went up from Rs 6,643 million to Rs 8,173 million. Provision against non-performing advances came down from Rs 1,488 million to Rs 852 million.

BANK ALFALAH has posted Rs 445.7 million profit after tax for the year 2002 as compared to a profit of Rs 310.6 million for the previous year. EPS improved from Rs 3.65 for year 2001 to Rs 4.46 for the year 2002. The Board of Directors approved distribution of 20% dividend to the shareholders and issue of 33.33% Bonus shares. Net mark-up/interest income grew from Rs 891 million to Rs 1,463 million. Non mark-up income went up from Rs 377.9 million to Rs 615.4 million. However, non mark-up/interest expenses also hiked from Rs 744 million to Rs 1,184 million. Investments went up from Rs 11,396.6 million to Rs 24,694.4 million. Advance went up from Rs 19,131.5 million to Rs 28,319.4 million. Deposits went up from Rs 30,207 million to Rs 51,685 million.

STANDARD CHARTERED BANK has released the financial accounts for the year 2002 after amalgamation of ANZ Grindlays Bank into it. The bank has posted Rs 1,408 million profit after tax for the year 2002 as compared to the combined profit of Rs 396 million for both the banks for the year 2001. Customer deposits grew from Rs 51,643 million to Rs 55,525 million. Customer advances went up from Rs 38,096 million to Rs 17,653 million. The most remarkable feature was nearly three-fold increase in investment, going up from Rs 5,817 million to Rs 17,653 million. As the bank continued to add new products and further improve the level of customer support, there was increase in administrative expenses also, going up from Rs 598 million to Rs 1,195 million.

CITIBANK has posted Rs 1,064 million profit for the year 2002 as compared to a profit of Rs 847 million for the previous year. Among the foreign banks, Citibank has recorded the highest capital gains on investments, going up from a meagre of Rs 30 million to Rs 364 million. While the bank experienced decline in deposits and advances, there was substantial increase in investments. Deposits came down from Rs 41,506 million to Rs 40,838 million. Advances declined from Rs 27,119 million to Rs 25,657 million. Investments went up from Rs 6,799 million to Rs 11,280 million.

ABN AMRO BANK has improved its profit after tax from Rs 732.5 million for the year 2001 to Rs 1,025.5 million for the year 2001. The investment by the bank in technology and introduction of new value-added products and services has started yielding results. There was marginal increase in deposits, going up from Rs 34,192 million to Rs 34,696 million. Advances grew from Rs 23,861 million to Rs 25,141 million. Investments came down from 9,317 million to Rs 8,935 million.

DEUTSCHE BANK has posted a meagre profit of Rs 119 million for the year 2002. However, it should be looked as an achievement because the bank had posted heavy loss for the year 2001. The declining trend was witnessed in deposits, advances and investments. Deposits came down from Rs 3,994 million to Rs 2,701 million. Advances declined from 3,169 million to Rs 2,293 million. Investments plunged from Rs 571 million to Rs 304 million.

OUTLOOK

After the good performance in 2002, the operating environment for banking sector in 2003 poses great challenges particularly in the environment of declining interest rates and shrinking spreads. Banks are forced to take new initiative to combat fierce competition and eroding profits margins. Though the economy is set to grow, the growth of banking sector will largely depend on the growth of private sector credit demand.

One of the key success factors for a commercial bank in future will be its ability to reach out to its clients through multiple delivery channels, ranging from a traditional brick and mortar branch network to a state-of-the-art customer contact centres, comprehensive ATM network and Internet-based banking facilities.

Banks are expected to redefine their marketing strategy. Most of them will focus more intently on retail banking products such as personal loans, small business finance, mortgages and investment products, The advent into the retail banking will only be hampered by scarcity of skilled human resource with exposure in handling consumer products, especially assets. The consumers will be reached through technology dependent channels of distribution such as ATMS, Debit and Credit cards.

Table-1
LISTED COMMERCIAL BANKS

Askari Commercial Bank

:ACB

Bank AL Habib

:BAH

Bank of Punjab

:PoB

Bolan Bank

:BB

Faysal Bank

:FB

KASB Bank

:KB

Meezan Bank

:MB

Metropolitan Bank

:Metro

Muslim Commercial Bank

:MCB

National Bank of Pakistan

:NBP

PICIC Commercial Bank

:PCB

Prime Bank

:PB

Saudi Pak Bank

:SPB

Soneri Bank

:SB

Union Bank

:UB

 


 

Table-2
SHAREHOLDERS EQUITY AS ON 31/12/2002

 

(Rs in million)

 

Paid-up  capital

Reserves

Accumulated Profit

Total Equity

ACB

1,087

1,939

0

3,026

BAH

866

940

16

1,822

PoB

1,004

1,358

1

2,363

BB

1,016

84

12

1,112

FB

2,648

1,447

25

4,120

KB

616

146

-169

593

MB

1,001

475

0

1,476

Metro

1,000

1,063

11

2,074

MCB

2,665

3,027

622

6,314

NBP

3,730

7,144

3,405

14,279

PCB

825

489

9

1,323

PB

1,008

372

0

1,380

SPB

1,500

114

-811

803

SB

1,018

768

6

1,792

UB

1,626

375

242

2,243

 


 

Table-3
PROFIT BEFORE TAX FOR 2002

 

(Rs in million)

ACB

1,244

BAH

620

PoB

432

BB

25

FB

1,255

KB

-102

MB

271

Metro

876

MCB

3,101

NBP

6,045

PCB

509

PB

306

SPB

293

SB

621

UB

286

 


 

Table-4
ASSETS AS ON 31/12/2002

 

(Rs. in million)

 

Gross

Net

ACB

70,313

4,173

BAH

49,437

2,592

PoB

29.533

3,313

BB

10.595

1,119

FB

36,671

5,264

KB

4,037

752

MB

6,971

1,586

Metro

41,381

3,106

MCB

235,139

11,699

NBP

432,802

23,936

PCB

27,982

2,302

PB

21,637

1,581

SPB

19,617

1,005

SB

27,998

2,293

UB

55,849

2,736

 


 

Table-5
DEPOSITS AS ON 31/12/2002

 

(Rs in million)

ACB

51,732

BAH

34,240

PoB

23,767

BB

7,761

FB

24,554

KB

2,640

MB

5,079

Metro

28,515

MCB

182,706

NBP

362,866

PCB

21,155

PB

14,640

SPB

12,341

SB

20,545

UB

37,760

 


 

Table-6
ADVANCES AS ON 31/12/2002

 

(Rs. in million)

ACB

30,035

BAH

23,775

PoB

6,621

BB

3,298

FB

21,935

KB

490

MB

3,532

Metro

19,444

MCB

78,924

NBP

140,547

PCB

10,876

PB

9,016

SPB

8,522

SB

11,378

UB

28,890

 


 

Table-7
INVESTMENTS AS ON 31/12/2002

 

(Rs. in million)

ACB

26,759

BAH

18,831

PoB

8.295

BB

1,328

FB

6,842

KB

2,118

MB

856

Metro

15,013

MCB

89,610

NBP

143,525

PCB

10,306

PB

7,534

SPB

6,365

SB

9,844

UB

11,822

 


 

Table-8
ADMINISTRATIVE EXPENSES FOR 2002

 

(Rs. In million)

ACB

1,090

BAH

760

PoB

901

BB

380

FB

619

KB

204

MB

195

Metro

485

MCB

8,077

NBP

9,138

PCB

326

PB

512

SPB

262

SB

440

UB

1,563