Pakistani banks’ profit growth may slow this year after the central bank cut interest rates to the lowest in almost five years and increased the minimum deposit payout, Deutsche Bank AG’s local chief said.
“The banking sector has taken cuts since 2011,” Faizan Mitha, Deutsche Bank’s managing director, said in an e-mailed response to questions. “The issue this time is the minimum rate of 6 percent that banks need to pay on savings deposits.”
The central bank’s deposit rate increase may reduce the banking industry’s profits by as much as 20 billion rupees ($210 million) this year, Mitha said. Pakistan has cut the benchmark lending rate twice since August, targeting economic growth of 4.3 percent in the year ending June 30, even as power blackouts and war on the country’s boarders stifle investment. The central bank increased the minimum rate lenders must pay on savings deposits to 6 percent from 5 percent in May. Profit growth may be 10 percentage points lower solely because of this measure although net income will be better than last year, Mitha said.
The State Bank of Pakistan lowered its benchmark interest rate for a second time on Oct. 5 to 10 percent from 10.5 percent after reducing it by 1.5 percentage points in August.
Savings accounts represent about 40 percent of the country’s 6.3 trillion rupees in bank deposits, according to Raza Jafri, head of research at AKD Securities Ltd.
Banks’ profits expanded 27 percent in the six months ended June 30, according to a Sept. 10 report by Invest Capital Markets Ltd. in Karachi. Lending to private companies rose 2.6 percent in August to 2.9 trillion rupees from a year ago, according to central bank data.
“With all the negative sound bites and all the challenges, Pakistan is still a lucrative banking market and returns are quite good,” Mitha said.
Banks’ profit growth may slow over the next three years as political strife weighs on companies’ appetite to borrow and invest, Mohsin Ali Nathani, chief executive officer of Standard Chartered Bank Pakistan Ltd. (SCBPL), said in an interview on Aug. 7. Local lenders’ earnings may expand 10 percent on average, he said at the time.
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