Banks profits

It is the government not business community which makes banks rich in Pakistan as the profit of large private banks rose by more than 27% in the year 2011.

While presenting the bimonthly monetary policy a few weeks ago the governor State Bank was disappointed that most of the credit taken by the private sector was meant for working capital and that the banks heavily investing into government papers.

“Cumulative earnings of 4 big banks (HBL, UBL, ABL, MCB) reached Rs66 billion in 2011, up 27 per cent from 2010. Amongst listed private banks, four banks contribute 70 per cent of the market capitalization.

How vigorously govt borrowing is rising each year is visible from the State Bank`s latest report which shows that the government has so far borrowed about Rs690 billion from the scheduled banks till February 8, 2012 since July 2011.

At the end of June 2011, the stocks of the government loans from schedule banks had reached Rs1.67 trillion explaining the causes of real profits for the banks.

This huge investment in government papers yields real profit for the banks and despite an ailing economic growth the banks have been making profits due to this reason since 2008.

Economists believe the fiscal deficit is rising higher than last year and it might be ended at over 7 per cent of Gross Domestic Product (GDP) till June 30,2012. This will promote more borrowing by the government.

The IMF also criticized the government fiscal policies and massive borrowing from banks which finally stopped lending despite having an agreement for large amount of $11.40 billion. Pakistan received only $7.90 billion.