BANKING SECTOR IN PAKISTAN

S.KAMAL HAYDER KAZMI,
Research Analyst
, PAGE
May 11 - 17, 2009

In Pakistan, there are 53 banks that include 30 commercial banks, four specialized banks, six Islamic banks, seven development financial institutions, and six micro-finance banks.

Banking sector's performance in the first quarter of 2009 saw the advances declined by 3% to Rs 3.06 trillion. In the same period last year, there was a 6% growth driven by demand from public sector enterprises. Because of the decline in advances, gross advance to deposits ratio declined to 79% while net advances to deposits ratio stood at 73%. Due to sluggish advances growth, banks' investments stood at 17% in 1Q2009. Investments stood at Rs 1.148 trillion in March 2009. Investments to deposits ratio (IDR) of banks reached 30% at the end of the quarter from 26% on Dec 28, 2008.

Deposits witnessed a growth of 2% during 1Q2009 in line with the growth observed in 1Q2008. During the quarter, a provision against NPLs increased by 10%. Total customer deposits of the banking industry reached Rs 3.9 trillion ($48.1 bn) as of Mar 28, 2009, depicting a growth of 2% from Rs 3.8 trillion ($48.2 bn) at the end of Dec 2008. The gross advances of scheduled banks fell by 3% to Rs 3.1 trillion ($38 bn) as of Mar 28, 2008. After witnessing a fall of 19% or Rs 230 bn in 2008, banks' investment portfolio returned to normal levels as investments rose by 17% to Rs 1.1 trillion ($14.2bn) as of Mar 28, 2008.

Lower deposit growth and strong credit offtake from the public sector resulted in banking offloading investments to facilitate lending in 2008. However, the decline in credit offtake during 2009 thus far has resulted in the growth in investment portfolio.

STRUCTURE OF INTEREST RATES
MONTHS/ YEAR RATE %
7-Jun-01 14
19-Jul-01 13
17-Aug-01 12
20-Oct-01 10
23-Jan-02 9
18-Nov-02 7.5
11-Apr-05 9
29-Jul-06 9.5
1-Aug-07 10
31-Jan-08 10.5
23-May-08 12
30-Jul-08 13
13-Nov-08 15
APRIL-09 14
Source: SBP

NEW MINIMUM CAPITAL REQUIREMENT

The banks are required to raise their minimum paid-up capital (MCR) to Rs10 bn by Dec 31, 2013, instead of an earlier set limit of Rs23 bn according to the SBP. The MCR requirement was slashed by 77%, which was surprising. The banks will now be required to raise their MCR to Rs6 bn by Dec 31, 2009, Rs7 bn by 2010, Rs8 bn by 2011, Rs9 bn by 2012, and Rs10 bn by Dec 31, 2013. The State Bank of Pakistan did not change the requirement of Capital Adequacy Ratio (CAR). The capital adequacy standards will continue as previously and all banks and DFIs will be required to increase CAR to 10% until Dec 31, 2009.

BANKS IN PAKISTAN
BANKS LOSS / EPS
  Dec 2008 Dec 2007
UBL 8.24 8.31
MCB 24.47 24.30
HBL 20.47 13.18
NBP 17.00 21.00
Faysal Bank 1.98 (9M) 4.29
BankAlfalah 1.63 3.92
Allied Bank Limited 1.27 0.43
NIB Bank (2.63) (0.44)
Standard Chartered (HY) 1.43 1.08
Meezan Bank 1.26 1.96
Askari Bank 0.95 6.61
Bankislami (0.12) (0.13)
Bank Al Habib 4.95 4.59
Saudi Pak Bank (2.83) (5.49)
Habib Metropolitan 5.45 4.65
Mybank (0.79) 0.84
Soneri Bank 1.70 2.43
KASB Bank (2.43) 0.79
Emirates global Islamic Bank Ltd (0.60) (0.21)
First Women Bank Ltd 3.74 5.57
Dubai Islamic Bank Pak Ltd (0.24) 3M (0.31) 3M
JS Bank 0.11 0.07
Arif Habib Bank (0.38) 0.65
Dawood Islamic Bank 0.088 (9M) 0.170
Atlas bank (2.02) (0.93)
RBS (Pakistan) (0.38) (1.16)
Various Sources

FUTURE OUT LOOK

There is a tremendous potential for further investment in the financial sector of Pakistan. Given the current economic scenario, where we are faced with many difficulties, it is comforting to see expansion in the financial sector, which is a manifestation of confidence of foreign investors. The development in the financial sector over the years has led to rising competition and product offerings, and diversification of business activities which in turn, not only benefited local consumers but financial institutions as well. The country's banking system effectively coped up with several challenges emanating from the economic slowdown both at home and abroad due to strong regulatory and supervisory framework as well as strong resilience built over the years. However, the banks should expand their outreach to a large unexplored bankable population across the nation.

NEW MCR FOR BANKS

YEARS ENDING

MCR

Dec-2008

Rs 5 bn

Dec -2009

Rs 6 bn

Dec -2010

Rs 7 bn

Dec -2011

Rs 8 bn

Dec -2012

Rs 9 bn

Dec -2013

Rs 10 bn

Various sources