KARACHI (March 18 2003) : Profit after tax (PAT) of 10 private banks increased by around Rs 1.1 billion or 55 percent to Rs 3 billion, with pre-tax profits rising by Rs 1.6 billion to Rs 5.6 billion in 2002 as compared to 2001.
Main contribution in the increase of PAT in 2002 came from Faysal, showing an increase of Rs 380 million, PICIC Rs 208 million and Askari showing an increase of Rs 137 million.
Private banks operating in Pakistan once again witnessed robust growth in their profits in 2002, despite low interest rates prevailing in the economy.
In Jan 2002, 6-month T-bill cut-off rate and 10-year PIB stood at 8 percent and 12 percent, respectively, as against 4.4 percent and 5.6 percent at end Dec 2002.
During 2001 also, private banks profits posted 50 percent jump on the back of rising interest rates.
There are currently 13 private banks in Pakistan of which only 1 is not listed (that is Bank Al Falah).
Until now, 11 out of 12 listed private banks have announced their 2002 financial results (Saudi Pak has not issued their results yet), a report of Invest Capital Securities said.
Our sample for the analysis comes to around 10 private banks as we have excluded Meezan Bank, a new player that came last year.
This was done to maintain comparability from 2001. Moreover during the year 2002, Faysal Bank merged with Al-Faysal, whereas Emirates was acquired by Union Bank.
Except for the loss making Platinum Bank (now KASB Bank), the rest of the banks posted healthy growth in their profitability in 2002 in spite of falling interest rates.
The main contribution towards increase of Rs 1.1 billion in PAT came from the increase in Net Interest Margin (NIM), which increased by Rs 1.6 billion to Rs 7.2 billion in 2002 for the sampled private banks.
In percentage terms, NIM surged from 27 percent in 2001 to around 32 percent in 2002.
The surge in NIM, of Rs 1.6 billion, seems to be the result of substantial increase in deposit base of private banks, which grew by around 24 percent in 2002, coupled with the banks' ability to pass on the fall in interest rates to the depositors.
It is worth mentioning that during 2002 deposits of the overall banking sector grew by an above-average rate of around 18 percent (Rs 248 billion).
Non-interest income of these 10 private banks increased by around Rs 1.3 billion in 2002 over 2001.
Capital gains on investment contributed most towards this increase.
Analysing capital gains on investment of three major private banks (considered representative of private banking sector), Askari, Soneri and Union, we observed that around 50 percent of the increase in non-interest income came from this, made possible due to the fall in interest rates in the economy.
Non-interest expenses also surged by 28 percent. On the other hand, non-interest expense of these private banks increased by Rs 1.5 billion (28 percent) to Rs 6.9 billion thereby capping to some extent the benefits of rising NIM and non-mark up income.
This increase in expenses was despite lower provisioning by these banks in 2002.
We believe that this increase denotes effects of mergers and acquisitions taken place in 2002 as Union contributing around Rs 523 million towards the increase of Rs 1.5 billion in the non-interest expense.
Contrary to common belief, a 3 percent reduction in banks' tax rate did not provide substantial boost to the net profit of the banks.
Had there been no change in taxes, the overall profitability would have grown by 47 percent in 2002.