Due to lower interest rates and its driven income coupled with rising expenses of the operations, the banking sector witnessed a shocking loss of Rs 12 billion as it profits declined to Rs 40.9 billion in the second quarter of 2016 compared with first quarter in which it stood at Rs 52.9 billion.
According to the State Bank of Pakistan (SBP), 30 out of 35 banks posted profits in the overall second half of 2016. These banks include—Summit Bank, Burj Bank, Bank Albaraka, SME Bank and etc.
The count for loss making banks increased to 5 from 4 in the first quarter. The figure of loss making banks stood at 3 by end of 2015 and June 2015.
The interest rates of the banks declined, followed by lower policy rates which stand at a decade-old level at 5.75 percent, while the non-mark income of few banks also decreased. Furthermore, rising cost to income ratio owing to infrastructure expansion, hiring of human resource, IT related investment etc also has hit the profitability of the banking sector.
Besides, many of the large and mid-tier banks also witnessed decline in their profits not only from the previous quarter but from previous years. The concentration of earnings has marginally reduced as the share of the top 5 banks (UBL, HBL, MCB, ABL and NBP) in total profits has decreased to 60.9 percent in the first half of 2016.
In the first half of 2016, the overall profit of commercial banks — public & private sectors, foreign — dropped by 5.4 percent to reach Rs 93.7 billion as compared to similar period of last year due to low interest rates, the data released by State Bank of Pakistan said.
Pakistan banking industry’s assets have grown outstandingly by Rs 14.2 trillion in the second quarter of April to June to reach Rs 15.3 trillion by end of June 2016 mainly because of inflows of private sector advances and financing for commodity operations, and investments in government securities.
In the next quarter, the situation seems to remain similar and tough for few banks.