KARACHI (April 07 2003) : Foreign banks operating in the country posted 53 percent growth in their after-tax earnings during 2002. Their performance in the preceding year, too, was excellent, as they had posted a profit increase of over 60 percent.
In profitability terms, the local banking sector also showed tremendous performance in 2002, in spite of declining interest rates. Foreign banks are no exception in this trend.
According to a report of Invest Capital Securities, out of 16 foreign banks, 13 main operations in 2002 issued their annual accounts.
Accounts of three smaller banks (Rupali, Al-Baraka, and Doha) were not available yet. Efforts have been made to maintain comparability in this analysis, especially considering the fact that Standard Chartered and Grindlays have issued their merged accounts for 2002.
Many foreign banks headed towards consolidation last year in line with expectations.
Big players continued to shift their focus towards local currency-based banking, coupled with aggressive fee-based activities in the light of the fact that parity of swap dollar funds and FCAs had virtually come to an end in Pakistan. Rising competition from local banks forced them to introduce new products, especially in the field of consumer financing.
Smaller foreign banks are somehow trying to curtail their businesses and are seeking to sell out their operations to local groups.
Profit after tax of the 13 foreign banks jumped by 53 percent, or Rs 1.4 billion, to reach Rs 4 billion in 2002. Profit before tax also soared by 25 percent, or Rs 1.3 billion, to reach Rs 6.4 billion.
Main contributor in the Rs 1.4 billion increase in profit after-tax was the newly merged Standard Chartered Bank. Reduction in non-interest expenses, coupled with the absence of Rs 0.6 billion worth of integration cost in 2002, helped the Standard Chartered to post Rs 1 billion in profits in 2002 versus Rs 0.4 billion in 2001 for both (merged) banks.
Out of the 13 sampled foreign banks, only one posted loss in 2002, while in 2001, 3 banks were in the red.
With low interest rates prevailing in the economy, competition is fierce for placing funds at higher rates and, therefore, interest-based earnings of the banks were bound to get hit, somewhat.
In 2002, interest income of the sampled foreign banks decreased by Rs 8.2 billion to reach Rs 18.5 billion. On the other hand, the interest expense also decreased by Rs 8.1 billion.
Net Interest Margin (NIM), in absolute terms, more or less remained where it was in 2001. However, in percentage, NIM improved from 27 percent to 38 percent in 2002.
In 2002, non-interest income of sampled foreign banks increased by around Rs 0.2 billion to reach around Rs 5 billion.
In 2002, banks booked huge capital gains on investments. In foreign banks, Citibank stands tall in booking capital gains on investment, whose gains increased by Rs 364 million as compared to meagre amount of around Rs 30 million booked in 2001.
In 2002, non-interest expense of the sampled foreign banks decreased by around Rs 0.6 billion mainly on account of savings from Standard Chartered merger.
Moreover, in 2002, foreign banks registered reversal in provisioning for non-performing loans (NPL) that contributed towards lowering non-interest expenses.