With smaller banks at a relative disadvantage due to limited reach and weaker margins, the financial performance of minor lenders is a far cry from the bigger players in the local banking industry.
Unlike the large and midsized banks that churned a hefty profit of around Rs19.7 billion and Rs 4.7 billion, respectively, in the first quarter of CY11, the group of eight small lenders cumulatively posted around Rs662 million in losses.
Besides, the group also faces burden of large pool of toxic assets, with the average infection ratio standing at around 23 percent at the end of 1QCY11 as against average infection ratio of around 13 percent for both large and midsized banks.
Five out of eight small commercial banks - BIPL, SBL, SILK JSBL and BOK - managed to record profits, though small, in 1QCY11, but losses on MYBL, KASBB and SMBLs accounts pushed the groups collective bottom-line down in the negative territory.
The quarter marks significant improvement from the same quarter a year earlier, when only one bank, BOK, posted a positive bottom-line, while the group of small banks bore losses worth Rs1.5 billion in the 1QCY10.
The decline in the groups losses came on account of a 21 percent year-on-year jump in mark-up income to Rs10 billion in 1QCY11 as the collective pool of advances at the eight lenders accelerated to around Rs198 billion at the end of March from Rs160 billion at the end of 2009.
The banks holdings of advances and loan portfolio (ADR) remained close to 62 percent, slightly higher than the industrys average of around 60 percent.
The groups total deposit base surged to Rs320 billion in the 1QCY11 against Rs266 billion maintained at the end of 2009.
Although the groups earnings spread - the difference between what banks pay on their deposits and earn from loans and investment holdings - is small compared to larger banks, the improvement in CASA ratio in 2010 helped small banks to check growth in mark-up expenses, which grew by 10 percent year-on-year in 1QCY11.
Average CASA is close to around 51 percent for small banks in 2010 against an average of 62 percent for midsized banks and 70 percent for top five banks.
The total non-interest income, which encompassed returns from brokerage activities, investments in equity markets and dealing in foreign currencies, fell by 13 percent year-on-year to Rs 907 million in the 1QCY11.
In keeping with rising inflationary pressure, aggregate administrative expenses for the group of small banks surged by 14 percent year-on-year to Rs4 billion in the 1QCY11.
Due to the low scale, smaller banks lag behind in terms of efficiency. The average administrative expenses as a percentage of total revenues for the group stands close to 36 percent in 1QCY11 against 27 percent for the group of midsized banks and around 24 percent for the larger banks.
The growth in NPLs stayed constant in the first three months of CY11 at around Rs52 billion, however, with higher infection ratio and lower coverage ratio, the smaller banks might continue to take a knock from higher provisioning expenses down the line.
BIPL enjoys the lowest infection ratio close to around 4 percent and MYBL faces the highest ratio at nearly 34 percent.
The continuous and strong efforts by management of these banks would certainly bear fruit down the road.
But, the countrys weak economic condition suggests that they might take too long to pick up pace to become commercially viable. If that is the case, either the smaller players may consolidate among themselves or they might come on discount shelf for midsized banks.
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Small banks quarterly earnings
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(Rs mn) 1Q2011 1Q2010
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SILK 102 (410)
KASBB (549) (360)
BOK 280 107
BIPL 49 (10)
MYBL (94) (19)
JSBL 10 (189)
SBL 22 (64)
SMBL (482) (584)
Total (662) (1,528)
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Source: Company accounts