RATIO OF BAD LOANS INCREASING CONSUMER FINANCE
National Bank Launching Gdrs From London Stock Exchange
Oct 29 - Nov 04, 2007
The National Bank of Pakistan (NBP) currently in the process of issuing Global Depository Receipts (GDRs) from London Stock Exchange.
Having the strongest financial back up in the banking sector, the launch of GDRs by the National Bank of Pakistan is being termed as one of the major events in the Banking sector after MCB, which has already issued its GDRs from LSE.
Meanwhile, the NBP has requested the Karachi Stock Exchange for a 15 days extension for submitting its third quarter accounts which are also required t in the bank's offering documents that are to be filed with United Kingdom Listing authority.
Since these accounts will subject to a limited review (audit), the management of the bank has asked for the said extension.
The National Bank is expected to post profit after tax (PAT) of PRs15.3billion in 9 months 2007, a growth of 10% over corresponding period of last Year.
The net interest income of the bank is likely to grow by 13% to PRs24.5billion. On the other hand non-interest income is expected to decline by 5% to Rs8.6billion.
Reasons for decline could be the absence of contribution from the exchange equalization reversal on Cairo branch, which was presented, in the second quarter of 2006. Excluding this one timer, non-interest income is expected to witness a growth of 7%.
The bank will also book its dividend receipts from NIT units in the third quarter of 2007, inline with its historical practice. The NIT dividend will alone contribute Rs2.6 per share in the bottom-line of the bank.
RATIO OF BAD LOANS INCREASING IN CONSUMER FINANCE
The total Non-Performing Loans (NPLs) of the commercial banks in Pakistan have touched the level of Rs154billion, which is covered by 66% provisions.
The local private banks have loan loss coverage of 63% as on June 30, 2007. And, for public banks and foreign banks this ratio stood at 74% and 86%, respectively.
A chunk of the bad loans is related to consumer finance products of the commercial banks especially house financing and the car financing. The State Bank besides other preventive measures for the banks has also withdrawn the benefit of forced sales value of collateral (FSV) on non-performing loans (NPLs).
However, banks would continue to enjoy the benefits of FSV on NPLs of mortgage financing. The time period for classifying personal loans as "loss" category has also been reduced to 180 days from 360 days previously. The new guidelines will be implemented from Dec 31, 2007.
It is pertinent to mention that the time line for implementation set by the State Bank is inline with our expectation and contrary to market expectation. Market was expecting it to be implemented in a phased manner of 3 to 5 years.
The said changes will hurt the bottom-line of the banking sector in 2007 only as the estimated profits in 2007 are expected to decline by 15% (FCEL universe).
THE proposed changes will improve the asset quality of the banks. As mentioned earlier foreign bank operating in Pakistan have loan loss coverage ratio of 86% and they have provided more than the required provisions against NPLs. Interestingly, an analysis of banks of other countries also reveals that the loan loss coverage ratio in Pakistan is on the lower side due to FSV of assets. The new amendment in prudential regulation will cause banks to adopt best practices prevailed in other countries of the world.
IMF, ADB and S&P
The IMF, ADB and S&P in the recent review of Pakistan economy have all pointed out the bright side of Pakistan's economy.
According to IMF, the prospects for sustained high growth in 2007/08 and over the medium term remain favorable, as macroeconomic stability and market-oriented reforms further take hold.
Against the background, the discussions with the authorities focused on the policies needed to lower the external current account deficit and the associated vulnerabilities. In light of current uncertainties in global financial markets, the mission stressed the need for very prudent macroeconomic policies in 2007/08.
S&P says that Pakistan's economic fundamentals are still strong enough to deal with this kind of political uncertainty for a while. But if it does not get resolved soon, it will affect investor confidence". S&P added, "Irrespective of who will be running the country from next year onwards, we don't think there's going to be a fundamental policy change or reversal of reforms".
ADB released its 2007 outlook in September, and reiterated a medium-term positive outlook for Pakistan. But it also highlighted that a growing current account deficit, sustained high inflation and emerging power & gas shortages are potential risks to the country's medium-term economic prospects.
All these above outlooks will help Pakistan to attract foreign investments and better credit rating going forward.
Despite prevailing political instability, which has raised several questions, it is heartening to note that Pakistan's growth momentum is intact and is unlikely to derail.
Actually the assumption for stable economic outlook is being made on the back of a consensus like nod signaled by all political parties who look at the reform process, privatization, and restructuring with a sense of satisfaction and confidence.
The on going political transition towards relatively a strong democracy coalition, which has so far been addressed through political dialogues. This would hopefully improve Pakistan's image in the developed world, leading to better credit ratings of the country.