Pakistani banks have been showing resilience since the collapse of banking system largely in the developed economies and the impact was almost negligible.
However, the new banking year came under the garb of global economic recession, which is a direct outcome of the financial meltdown that ruined giant banks in United States and Europe.
‘During the first quarter of 2009, profits-after-tax of all banks stood at Rs16.1 billion as against Rs21.1 billion during the same period last year,’ said Kamran Rahmani, the banking analyst at First Capital Equities.
The banks’ trouble began with the slowdown of the economy, which severely slashed the credit growth for private sector. The liquidity flow for trade and industry has dried up and remained just 14 per cent during the last nine months compared to same period of last year.
On the other side, banks’ non-performing loans (NPLs) rose to record high level that has eaten up the profitability of the banking industry.
Banks have earned reasonably good net interest income due to high lending rates, an outcome of tight monetary policy and higher policy discount rate.
‘Notable rise in provisions against NPLs along with the impairment charges on equity portfolio were the prime reasons behind a double-digits decline in the underlying profits,’ said Rahmani.
The non-performing loans of banks and Development Financial Institutions (DFIs) set a new record of over Rs100 billion in just one year reflecting the gravity of the risks involved with financial system of the country.
The NPLs of all banks and DFIs reached Rs325.3 billion at the end of December 2008, which was Rs100.7 billion higher than NPLs at the same time last year.
The commercial banks were the real sufferers as they added Rs100.8 billion to their total NPLs.
Analysts said the NPLs were rising mainly because of deterioration in the economic system and the banks would be one of the biggest victims of the economic slowdown.
It is believed that the country would see just about 2 per cent economic growth during the current fiscal, which is much lower than the last year’s 5.8 per cent growth.
The rising NPLs and slowdown of economy forced small and medium-size banks to get a large shelter either by merger or by selling the entire entity.
Rahmani said the net interest income of the banks witnessed an increase of 24 per cent in first three month of the new calendar year compared to the same period of last year. However, the industry failed to retain the profitability because of massive NPLs and provisioning.
Few analysts were of the view that the inflows of loans from IMF, World Bank and monetary support of the United States would help to improve the economic growth and that would ultimately save many sectors from default and NPLs might drop in future.
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