Mar 30 - Apr 05, 2009

Most of the commercial banks have announced their full year financial results for the period ended December 31, 2008. Two of the observations deserve specific mention, gradual drift towards investment in government securities and rise in non-performing loans (NPLs). It is estimated that NPLs would exceed Rs 65 billion for CY08 as compared Rs 50 billion for CY07. Similarly, advances are likely to go down by 50% as compared to CY07.

Both the trends create uneasiness among the shareholders of the banks. All the banks are not likely to take into account the full impairment cost because of compliance to enhanced requirement of minimum paid-up capital requirement. Though, the central bank has released some of its rules to help the banks to avoid substantial erosion in profit.

Having said this it is also necessary to point out that lately sub prime loan issue has adversely affected not only the US banks and insurance companies but also caused global recession. However, banks and insurance companies in Pakistan have not faced the similar situation. It is mainly due to the stringent regulatory framework, though still needs further improvement.

Reportedly profit of big five banks (NBP, MCB, HBL, ABL and UBL) amounted to Rs53.32 billion in 2008 as compared to Rs54.81 billion a year ago, reflecting a decline of 3% YoY. HBL earning improved by 24% and contributed 19% in combined profit of five banks. On the other hand the NBP profit decreased by 19% among its peer's but contributed 29% towards the total. ABL earning hiked by 2% and contributed just 8%. MCB registered marginal increase of one per cent and but its contribution was as high as that of 29% of NBP. Similarly, UBL earning sliced by one per cent YoY but still contributed 16% towards the aggregate profit.

Hike in provisions and administrative expenses caused dent in the combined earning of the banks for 2008. Combined provisions against loans and advances spiked to Rs35.53 billion in 2008 as compared to Rs24.66 billion in the last year, reflecting growth of 44%. NBP posted massive growth of 124% in provisions to Rs10.96 billion as against Rs4.72 billion a year ago.

NBP posted profit after tax of Rs15.45 billion (EPS: Rs17.23) as compared to profit of Rs19.03 billion (EPS: Rs 21.22), a decline of 19% YoY. This dent was caused by heavy provisioning against non-performing loans and provision for diminution in the value of investments. Provision against non performing loans surged to Rs10.59 billion as compared to Rs4.72 billion, hiked by 124%. On top of this, administrative expenses increased by 28% to Rs18.17 billion from Rs14.20 billion during this period.

HBL posted profit after of Rs10 billion (EPS: Rs13.18) for 2008 as compared to Rs8 billion (EPS: Rs10.59) for 2007. Interest income grew by 27% to Rs61 billion from Rs48 billion. Moreover interest expense hiked by 42% to Rs25 billion as compared to Rs18 billion. On the other hand non performing loans against advances decreased by 13% to Rs6.74 billion while Rs7.74 billion in the same period last year. Further more, Rs2.54 billion kicked out as provisions for diminution in the value of investment.

ABL posted profit after taxation for CY08 stands at Rs4.1 billion translating into EPS of Rs6.43 as compared to Rs4.0 billion translating into EPS of Rs6.31, realizing the percentage increase of 2% on YoY basis. Interest income stood at Rs30 billion as compared to Rs21 billion in the same period last year, showing the net increment of 44%. Interest expenses has hiked by the rate of 64% to Rs16 billion as compared to Rs10 billion. ABL also recorded provisions for diminution in the value of investments (net) of Rs1.78 billion as compared to Rs0.719 million, increased substantially by 2476%. In addition with above administrative expenses stood at Rs8.0 billion while Rs5.9 billion in comparable period last year.

United Bank Limited posted profit after taxation for CY08 of Rs8.33 billion (EPS of Rs8.24) as compared to Rs8.40 (EPS of Rs8.31) in CY07, realized percentage decline but minimal of 1%. With the announcements of the result UBL also declared final cash dividend of Rs2.50 per share. Moreover, 10% bonus shares have been recommended by Board of Directors. While non performing loans against advances dwindled by 18% to Rs4.51 billion while Rs5.49 billion in the same period last year. But total provisions stood at Rs8.09 billion as compared to Rs6.42 billion in the same period last year, showing 26% increment. Further more, administrative expenses hikes by the rate of 22% to Rs15.51 billion in CY08 while Rs12.67 billion in the same comparable period last year.

MCB posted profit after tax of Rs15.374 billion (EPS: Rs24.47) as compared to profit of Rs15.265 billion (EPS: Rs24.30) reflecting the insignificant growth of one per cent YoY. One of the research houses forecasted provisions against non performing loans of Rs3.262 billion while actual provisioning came to Rs4.029 billion. Interest income grew by 26% to Rs40.043 billion in 2008 from Rs31.786 billion a year ago. As against this, interest expense increased to Rs11.560 billion from Rs7.865 billion, showing an increase of 47%. The net interest income stood at Rs28.483 billion as compared to Rs23.921 billion. On the other hand operating expenditure hiked by 40% to Rs8.377 billion as compared to Rs5.999 billion.


Over the years cost of fund of big banks had remained low because of the policy of paying pathetically low return on deposits. However, since Dr. Shamshad Akhtar, previous governor of the central bank had made it mandatory for banks to pay minimum 5% return on deposits their interest expense has increased. However, the average spread still hover around 7%, which is very high. The two other reasons for payment of low return to depositors are very high administrative expenses and huge perks for senior executives. While banks never miss an opportunity to fleece the accountholders in the name of service charges the quality of services on the decline.