Thursday, December 24, 2009

NPLs increased to Rs422bn in Q1, says State Bank














Thursday, December 24, 2009
By Saad Hasan

KARACHI: The State Bank of Pakistan’s (SBP) banking performance review for July-Sept 2009 says that the overall banking system is still under stress as a consequence of rising non-performing loans (NPLs) amid an uncertain economic environment.

NPLs rose at a faster rate of six per cent to Rs422bn in the quarter under review compared with some let-up in its growth in the previous April-June 2009 quarter.

Helped by quick recovery in the global financial meltdown, Barclays Bank is fast catching up with other foreign banks operating in Pakistan by mobilising deposits and increasing advances, shows a State Bank of Pakistan (SBP) report.

In a little over a year since its launch, Barclays saw deposits and advances rising to Rs28.2 billion and Rs13.6bn respectively in the quarter that ended on September 2009, the SBP said in the banking sector’s review report.

Among foreign banks, Citibank holds the highest deposits and advances of Rs63.5bn and Rs27.2bn, respectively followed by HSBC’s deposits of Rs42.9bn and advances of Rs20.7bn.

With respect to capital base, Citibank has equity of Rs8.7bn while Barclays maintains the second highest equity at Rs6.6bn. Albaraka Islamic Bank, which recently expanded its publicity drive, has deposits and advances of Rs19.5bn and Rs14.1bn respectively.

Barclays started business in Pakistan at the peak of international financial turmoil in July 2008. It has opened up 14 branches in six cities. All other foreign banks have been operating for many years but none have expanded business so vigorously.

Citibank, which has long been the leading foreign financial institution in the country, has rolled back part of its business in the past year. It reduced the number of branches to 18 from 23 earlier this year. It is also in talks with a local Islamic bank to sell off its auto and housing finance portfolio.

The deposits of the banking system declined by 1.7 per cent in the wake of competition from the national saving schemes. “Disaggregated analysis of deposits shows that over the quarter the decline was contributed by financial institutions deposits and current accounts,” the report said.

Advances to both public and private sector also went down. SBP said lending to private sector declined because of low aggregate demand in the economy, high borrowing cost, unresolved political and security issues and risk of defaults.

But the overall reduction in advance portfolio of the banking system came mainly from SME and consumer sectors. The corporate sector including energy firms, in fact, borrowed more.

It said since last year banks have been inclined towards parking their funds in government papers. Investments surged by 13.1 per cent, mainly in treasury bills and bonds issued by public utilities.

The SBP said the last Oct-Dec 2009 quarter will see a rise in advances, but cautioned that much depended on the ability of banks to raise deposits.

It said the risk-based capital adequacy ratio (CAR) of all banks improved to 14.3 percent in the quarter. “Overall profitability of banking system remained fair. However, the earnings were largely skewed towards large and medium-sized banks as most small sized banks saw little profits and losses.”

Banks posted an aggregate pre-tax profit of Rs70.1 billion for the first three quarters of 2009 with pre-tax return on assets of 1.6 per cent.

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