Large banks reap profits

Three out of five large banks: Habib Bank Limited (HBL), Muslim Commercial Bank (MCB) and Allied Bank Limited (ABL) revealed their first quarter results yesterday. The bottom line (unconsolidated) of HBL, MCB and ABL marked year-on-year growth of 20 percent, 12 percent and 21 percent, respectively. However, on a consolidation basis, HBL recorded the fattest bottom line with net profit of around Rs.6 billion. Supported by expansion in investments portfolio, the asset base of all three mighty banks registered growth. HBLs asset base increased to Rs.1,119 billion at the end of March 2012, marking a growth of 23 percent relative to the same period last year. MCBs and ABLs asset base increased by 10 percent and 18 percent, respectively, to around Rs.667 billion and Rs.533 billion, respectively. HBLs, MCBs and ABLs investment to deposit ratios stood around 53 percent, 64 and 42 percent, respectively, as on March 31, 2012. Barring ABL, the mark-up revenues of the other two banks have registered growth; while expansion in deposit base resulted in higher markup expenses. Despite expansion in the size of earning assets, decline in KIBOR has squeezed the industrys margins. This can be analysed from the fact that net interest income of MCB and ABL fell by 2 percent and 21 percent, respectively, during the period under consideration. Similarly, the gross spread ratio of HBL, MCB and ABL stood at around 53 percent, 61 percent and 41 percent, respectively, in 1QCY12, down by 5 percentage points, 7 percentage points and 10 percentage points, respectively, relative to the same period of last year. Aided by higher dividend income, ABLs other income doubled during the period under review. HBL managed to keep other income close to last years level, while higher brokerage fees and commission income and dividend income lifted MCBs other income by 20 percent. Higher dividend income is symptomatic of the financial institutions growing interest in investments in mutual funds. The banks benefitted from lower provisioning cost since the lenders managed to curtail growth in non-performing loans. Moreover, the large banks managed to operate efficiently, as evident from non mark-up expenses, in the face of inflationary pressures coupled with investment in technology up-gradation and expansion in infrastructure. The operating revenues to expense ratio of HBL, MCB and ABL bank stood at 2.6, 3 and 2.3, respectively, in 1QCY12. The market foresees tighter margins for the lending institutions going forward. But, lower provisioning cost and higher dividend income-stemming from growing investments in mutual funds, will likely offset the impact of lower net interest income on the industrys bottom line.