Looking at the 2012 audited accounts of large local banks, specially December quarter, it is clear that making money would be difficult for bankers in coming quarters due to shrinking margin.
With eroding core business, the big banks’ earnings posted a nominal growth of 6pc in 2012 to reach Rs88.3bn while pre-tax profit was almost flat increasing by just 2%. In fact Dec quarter earnings fell 3% from Sep quarter. Decline in NII was compensated by lower provisioning while increase in admin cost was managed by rising non-interest income.
This compares unfavourably with 20% profit growth seen in 2011. Unlike 2011, where Net Interest Income (NII) remained the prime earning driver for large banks, declining provisions and better non-interest income supported the bottom line in 2012.
“We have based our analysis on unconsolidated earnings of 5 large banks (NBP, HBL, UBL, MCB and ABL) representing 72% of the sector’s market capitalization, over 60% of branch network and contributing 55% of banking deposits. Except for NBP whose profits were down 8%, remaining four banks posted improvement in profits in 2012 as shown in accompanied table,” said the analysts at Topline Research.
The 250bps fall in policy rate in 2012 coupled with maintenance of minimum deposit rate at 6% on PLS accounts affected NII of these banks, they said. In 2012, cumulative NII declined by 6% or Rs13.3bn to Rs197.5bn as against Rs210.8bn during the previous year where NII grew by 15%. HBL posted the highest NII growth of Rs1.2bn or 2% to reach Rs56.1bn, while ABL’s NII fell by Rs6.8bn or 27% to Rs18.4bn.
On quarterly basis, NII was realized at Rs49.5bn as against Rs48.6bn, up 2%. This increase is realized due to exceptional performance of NBP during the December quarter, where the bank posted NII growth of 30%.
Although decline in interest rates resulted in the shrinking spreads, this fall also caused reclassification of non-performing loans. Resultantly, declining provisions, especially on advances, remained one of the prime supporters of the profitability growth during the year. In 2012 total provisioning of large banks stood at Rs18.5bn, as against Rs30.5bn down by Rs12.0bn or 39%.
Rise of Rs17.1bn or 29% in non-interest income led by booming bond and stock market help compensate for rising inflation driven admin charges. Admin and relate costs of these banks grew by Rs13.8bn or 13% in 2012 to reach Rs119.5bn.
