KARACHI (September 27 2006): The banking sector staged yet another remarkable performance as the profitability of all the 22 listed banks during the first half of the calendar year 2006 surged by 65 percent, touching Rs 32 billion as against Rs 19.4 billion registered during the corresponding period of 2005.

Analysts said that major reasons attributable to this growth were higher advances and increase in lending rates of the banking sector at large. As a result, mark-up income of the banks rose by 75 percent whereas net interest income soared by 42 percent.

Top performers, in terms of percentage growth in bottom line, were UBL, ABL and Meezan Bank (MEBL), recording increase of 125 percent, 117 percent and 112 percent, respectively, while on the other hand of the spectrum stood NIB, KASB and Saudi Pak Commercial Bank (SPCB) which lost 69 percent, 41 percent and 15 percent in terms of profitability.

The overall advances of the listed banks during the period under review rose by 11 percent to Rs 1.6 trillion. At the same time, deposits rose by 6 percent to Rs 2.27 trillion. As a result, the Advance/Deposit ratio netting provisions for non-performing loans stood at 68 percent.

Hence, the banking system is generally in a sound condition despite State Bank of Pakistan's tighter requirement for banks to maintain cash reserve requirement and statutory liquidity requirement of 7 percent and 18 percent respectively from 5 percent and 15 percent previously.

Due to its recent entry in commercial banking, Bank Islami had the highest ADR of 165 percent, following which were NIB and MEBL with an ADR of 99 percent and 86 percent respectively. On the other hand, Crescent Commercial Bank (CCBL) was the safest in this regard, having an ADR of 27 percent.

Next up was SPCBL and then the Bank of Khyber whose ADRs stood at 38 percent and 45 percent respectively. As far as the interest rate environment is concerned, weighted average lending rates of the banking system on fresh loans rose by 3.1 PPS y-o-y to 10.1 percent during the first half of calendar year 2006, whereas rates on fresh deposits during the same period rose by 2.1 PPS to 4.5 percent.

Consequently, spreads were up by a percentage point at 5.5 percent from 4.5 percent previously, which effectively translated into an increase of 22 percent y-o-y.

Jawad Haleem, a research analyst at Atlas Capital Market, said that the profitability of the banking sector for the full year 2006 is expected to surge by 39.41 percent to Rs 66-67 billion as against Rs 47.5 billion during 2005.

The prospective price to earnings and prices to book value multiples of the industry for calendar year 2006 are thus expected at 8.5 and 2.3 respectively. "Being at the deepest discounts to both these industry multiples, our best picks of the sector are BoP, ACBL, FABL and Picic Commercial Bank (PICB)," he added.

Copyright Business Recorder, 2006