KARACHI : Banks' and DFIs' profits are likely to witness a significant increase of some 10-12 percent in 2009 with the State Bank's move to allow them to avail 40 percent benefit of Forced Sale Value (FSV) of collateral for calculating provisioning requirement, industry sources said.
Earlier, the industry was expecting some 1-2 percent reduction in banks' profit in calendar year 2009 due to the high provisioning of loans ahead of rising non-performing loans (NPLs). However, the central bank's current move would help the banks and DFIs to improve their profitability, sources added.
Sources said that industry is expecting a massive increase in NPLs due to slow economic activity, followed by global financial and economic meltdown. NPLs of banking sector stood at Rs 325 billion as on December 31, 2008 and it is estimated that NPLs are likely to cross Rs 400 billion level at the end of December 2009.
"SBP's moves would put positive impact on the banking industry, which is already facing severe problems including slow deposit growth and rising NPLs," said a banker. At a time when banks' profits are facing pressure from rising NPLs, the availability of 40 percent FSV benefit would help improve to improve earnings, he added.
He said that 40 percent benefit on FSV would result in lower provisioning, which would definitely improve the earnings of the banks and DFIs. "It is a better opportunity for banks to make efforts for cut in rising NPLs, while leading banks like Habib Bank, National Bank, United Bank, MCB Bank, Allied Bank and some other smaller banks would be the primary beneficiaries of this development," he added.
Copyright Business Recorder, 2009
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