Small and midsize businesses usually lose out to big players within their industry. But in the case of the local banking industry that welcomes more bankers with open arms to cater the large, unbanked population, performances of smaller banks are getting close at par with giant peers in the industry.
With financial intermediaries working might and main to expand size of earning assets, barring Faysal Bank (FABL) and NIB, the executives of other seven midsize banks- Bank Alfalah (BAFL), Standard Chartered Bank (SCBPL), Askari Bank (AKBL), Habib Metropolitan Bank (HMB), Bank Al Habib (BAHL), Meezan Bank (MEBL) and Soneri Bank (SNBL), cumulatively posted around Rs 5.3 billion profits in 1QCY11 - a jump of 42 percent as against same quarter a year earlier.
To no ones surprise, this number surpasses average 19 percent growth rate registered by the top five largest banks during the same period.
After taking FABLs profits, which dropped by around 86 percent due to amalgamation of RBS operations, and NIBs losses into account, the cumulative profit for nine midsize banks deteriorated to around Rs4.7 billion in 1QCY11, a drop of 13 percent against the same quarter a year earlier.
But since midsized banks lag behind big banks in attracting low cost deposits, the cost of deposits for midsized banks is much higher than bigger players. The huge pool of low cost deposits helped the group of five banks make cumulative profits nearly four times the size of cumulative profits made by nine midsize banks in 1QCY11.
Eager beavers also outdid giant banks on the revenue front, as aggregated markup return at the nine banks rose year-on-year by 20 percent as against 15 percent growth registered by the giants.
Following the foot prints of industry leaders, midsize banks showed keen interest in treasury securities, lifting the total investment portfolio of nine midsize banks to Rs793 billion at the end of March - a jump of 5 percent in the past three months and 23 percent higher than investment base maintained at the end of 2009.
Unlike big banks that remained impassive towards advances, collective advances pool at the nine lenders accelerated to Rs1,054 billion at the end of March from Rs 922 billion at the end of 2009. The average ADR of midsized banks remained close to the industrys average of around 60 percent
The cumulative deposit base of midsized banks remained virtually unchanged at Rs 1,763 billion in the past three months, but, this level is still around 21 percent higher compared to the deposit base maintained at the end of 2009. Excluding RBS, the cumulative deposit base is still 16 percent higher against the 10 percent growth registered by the group of giant banks during the same period.
The growth in deposits at the nine banks engendered 16 percent year-on-year growth in markup expenses, but, around 28 percent growth in net interest income strengthened overall financial health of the banks.
As four out of nine banks failed to lift non-markup income in 1QCY11, the cumulative non-markup income of the group fell by 2 percent year-on-year.
Moreover, midsized banks are also hanging behind in terms of efficiency. With large players in a better position to get benefits of scale, administrative expenses as a percentage of total revenue for the group midsized banks, was around 27 percent in 1QCY11, around 3 percentage points higher than the group of giant banks.
Although, the combined NPLs at the nine banks registered 38 percent growth in 2010, it remained unchanged in the past three months, bringing infection ratio of the group close to the ratio of top five banks of around 12.8 percent.
Given the pace at which midsized banks are expanding infrastructure and excelling in their niche segments, smaller banks would soon trespass the comfort area of large banks.
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Midsize banks performance (1QCY11 vs 1QCY10)
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(% chg) PAT Net Interest
income
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Bank Alfalah 59 49
Standard Chartered 39 14
Askari Bank 64 48
Bank Al Habib 18 41
Habib Metropolitan 8 3
Faysal Bank -86 77
Meezan Bank 61 33
NIB Bank NA -48
Soneri Bank 651 32
Total -13 28
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Source: Company accounts