KARACHI: The big five banks NBP, MCB Bank, HBL, UBL and ABL — bagged over 94 per cent of the total profit of the entire banking industry in 2009.Most of the results (over 90 per cent) of the listed banks for the year 2009 had been announced which showed that the five banks successfully enlarged their profits and got absolute domination in the banking industry.

This was also amazing that the five banks increased their profits despite poor economic growth and slow activities by the private sector during the year under review.

According to details the profits earned by the five banks were Rs62.321 billion while the total profit of the entire banking industry (over 90 per cent) were Rs66.044 billion in 2009.

Farhan Rizvi, researcher at JS Research, said the listed commercial banks earnings rose by 24 per cent to Rs66 billion in 2009 against profit of Rs53.2 billion in 2008.

The details showed that National Bank of Pakistan earned the highest Rs18.2 billion profit during 2009 as compared to Rs15.45 billion in 2008, an increase of 18 per cent.

MCB Bank was the second highest profit earner at Rs15.49 billion despite registering just one per cent increase over the previous year’s profit.

Habib Bank improved its profits by 23 per cent to Rs12.29 billion in 2009 while the United Bank Limited (UBL) earned 10 per cent more profit at Rs9.19 billion.

The largest jump in profits in terms of percentage was gained by the Allied Bank which maximised its profit by 71 per cent to Rs7.12 billion from Rs4.15 billion in 2008.

Several other banks including foreign and Islamic banks performed positively in 2009 but their shares in the entire profit of the banking industry were not significant.

The State Bank of Pakistan had been following a policy to encourage big banks to expand while small banks were forced to merge with big banks or pack up.

The strategy looks achieved success but the global financial meltdown which started from 2007 with collapse of larges banks sent messages that even large banks were not safe; in fact, large banks were mainly responsible for massive losses for the depositors and investors.

Only in United States so far 186 banks have been closed down while the large banks were injected with record taxpayers’ money worth $750 billion just to save them and protect the economy from collapse.

Many small banks in Pakistan have failed to meet the minimum capital requirement. The SBP has provided 3 to 6 months extension to 13 banks to improve the paid-up capital or disappear through merger or sale.

Analysts were of the view that the regulating authority had yet not come out with any strategy to save the economy from absolute domination of just five banks which carry massive risk. They said the failure of any of these banks could bring severe blow to the economy.

They said the increase in their earnings was driven primarily by a sharp rise in Net Interest Income (NII) and this was because of very high banking spread.

High banking spread means banks keep most of the profits while the depositors get less return (usually negative return) on their deposits. The real return on interests has been negative for years as the inflation remained much above the returns offer by the banks.

“The rise in profits is mainly led by recovery in the bottom line of big banks. Higher interest margin coupled with huge gains in capital markets helped the profitability,” said Mohammad Sohail, Chief of Topline Securities.

However, mounting NPLs and slowdown in credit growth remains key concern in 2010 while for smaller banks difficult time will continue, he warned.

“Banks took the advantage of Forced Sale Value (FSV) benefit which also augmented the bottom line,” said Mohammad Imran, researcher at Arif Habib Investment.