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Banking sector

Published on 8th Apr, Edition 15, 2013


Banks perform various roles in the economy. First, they ameliorate the information problems between investors and borrowers by monitoring the latter and ensuring a proper use of the depositors’ funds. Second, they provide intertemporal smoothing of risk that cannot be diversified at a given point in time as well as insurance to depositors against unexpected consumption shocks. Because of the maturity mismatch between their assets and liabilities, however, banks are subject to the possibility of runs and systemic risk. Third, banks contribute to the growth of the economy. Fourth, they perform an important role in corporate governance. The relative importance of the different roles of banks varies substantially across countries and times but banks are always critical to the financial system.

In Pakistan, the twenty commercial banks listed on the stock market posted a combined profit after tax of Rs118 billion in 2012 against Rs107 billion a year earlier, showing a 9 percent growth.

The presently released financial data of the banking sector for the year ended Dec 31, 2012 pointed out that lower provisioning by 28 percent year on year (YoY), and 27 percent higher non-interest income, compensated for the three percent YoY decline in NII.

However, combined profits for 4Q FY12 clocked in at Rs25 billion, representing a dip of 18 percent over the earlier quarter (QoQ), as NII declined by two percent, while provisions spiked by 48 percent QoQ, in line with traditional yearend book cleanups.

The year 2012 was a good year for banks overall, a sequential decline in 4Q FY12 results may extend into 2013. The major banks like; UBL, NBP, HBL, MCB, ABL and BAFL with combined assets of Rs500 billion, posted a net profit of Rs96 billion in 2012. Yet, they accounted for more than 80 percent of earnings of listed commercial banks. In 4Q FY12, the combined net profit of the sector amounted to Rs21 billion, representing a sharp drop of 12 percent QoQ, with provisions rising by 53 percent QoQ, also in line with year-end trend.

As per SBP figures, total deposits with banks in January 2013 stood at Rs6.61 trillion, of which around 38 percent were in saving accounts. Pakistani banks are enjoying the highest spreads in the Asian region, as compared to 3.21 percent in India, 3.00 percent in China, and just about 2.17 per cent in Thailand. More recently, SBP injected Rs510 billion into the money market through a 7-day reverse repo to help ease liquidity crunch of the banking system during March 2013. The banks had offered bids worth Rs603.25 billion for the open market operation.

On the other hand in Islamic banking industry (IBI) both assets and deposits also registered positive quarterly growth as asset base of the industry reached to Rs741 billion while deposits reached to Rs627 billion by end Sep 2012. In terms of market share, assets constitute 8.1 percent whereas deposits constitute 9.3 percent in overall banking industry. Rising trend in profitability of the Islamic banking industry continued and reached above Rs7.7 billion by end Sep 2012 from Rs6 billion by end June FY12.


Furthermore, during the second quarter of FY13, the infrastructure of payment systems in Pakistan maintained an increasing growth trend. A total of 245 more ATMs were installed by various banks bringing the total number of ATMs to 6,232 in Pakistan. Altogether, 484 more bank branches were added to the network of RTOB, which makes a total of 9,896 branches, which can now offer RTOB services out of 10,523 which constitute 94 percent of bank branches across the country.

The number of plastic cards in the country also increased by 5.33 percent compared to the numbers recorded in the preceding quarter. By the end of quarter under review, there were 20.72 million plastic cards issued in the country. The volume of overall e-banking transactions during this quarter depicted a growth of 11.31 percent to 79.45 million and the value of transactions increased by 18.02 percent to Rs7.6 trillion as compared to the figures recorded in the first quarter of FY13. The volume and value of RTOB transactions also increased by 14.29 percent and 18.82 percent respectively as compared to transactions recorded in the previous quarter of current fiscal year. In terms of volume of overall e-banking transactions, ATMs transaction has a major share of 61.12 percent and an average value per transaction stands at Rs9,779. In comparison with transactions recorded in the first quarter of current fiscal year, the overall volume of ATM transactions increased by 10.68 percent and the value increased by 10.33 percent. The volume and value of transactions through POS terminals stood at 4.5 million and Rs22.1 billion, which showed a growth of 5.06 and 6.25 percent respectively as compared to the figures recorded in the first quarter of current fiscal year.

During this quarter, the recorded volume and value of large value payments through RTGS was 121,663 and Rs42.13 trillion respectively. This showed a 10.35 percent increase in the volume and 9.46 percent in the value as compared to the figures recorded in the first quarter of current fiscal year. The major portion for the increased number of overall PRISM transactions this quarter was contributed by IBFT, which increased by 14.06 percent as compared to the last quarter. Similarly, the largest contribution in the value of overall PRISM transactions in this quarter was due to securities settlement which increased by 14.96 percent.


Banking sector stability is an important driver of future GDP growth. It is observed that 20 million bank accounts in a country of 180 million people is much too small a number. In order to grow and prosper, Pakistani banks would have to introduce fee-based products and tap small and medium enterprises, and the huge undocumented economy, where all transactions are cash-based with no place for banking, would have to be roped in.

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