KARACHI: Many banks are failing to meet the Minimum Capital Requirement (MCR) set by the State Bank as number of failing banks has reached nearly half of the total banks.
The State Bank in its recently issued performance review of the banking system revealed that 19 banks were facing failure to meet the MCR, reflecting the poor status of small and medium banks.
For the last couple of years, at least 10 banks kept struggling to meet the MCR, but failed and were solely dependent on State Bank`s favour as it has been extending deadline to meet the MCR.
“Data for paid-up capital of the banks (free of losses) reveals that 15 banks were falling short of MCR of Rs6 billion during the last quarter 2010,” said the SBP report.
“With MCR of Rs7 billion from Dec 31, 2010, 19 banks fell short of the enhanced MCR,” the report added.
Small and medium size bankers say the prevailing banking scenario is bleak for them as few banks have absolute monopoly and not leaving enough space for them to survive.
Due to global financial crisis local banks did not find investors or buyers from abroad which further weakened their financial health.
The State Bank has been asking them to improve MCR or go for merger of complete sell-out, but it did not take any action against them despite their failure regarding MCR, probably considering the global financial crisis and poor financial health of the country.
The Central Bank also mentioned that many banks were struggling to meet growing MCR because of deterioration in asset quality since 2008, coupled with the lack of interest by foreign shareholders.
Much of the improvement in tier-1 capital of the banking system was due to increase in the build-up of un-appropriated profits and accumulation in the stock of the general and statutory reserves in the wake of enhanced MCR requirements set by the SBP.While public sector banks and foreign banks witnessed deterioration in tier-1 capital, only large private banks (mainly big-5, NBP, HBL, UBL, MCB Bank and ABL) could improve their position.
The SBP report said the public sector banks witnessed deterioration in their tier-1 capital level on account of higher provisioning and accumulated losses. In case of foreign banks, their capital position deteriorated (by Rs2.3 billion) due to merger of Albaraka Bank with EGIBL (Emirates Global Islamic Bank Limited).
“On the other hand, large private banks witnessed improvement in their tier-1 capital by 5.4 per cent on account of higher un-appropriated profit,” said the SBP.
The Top 5 banks, with 51 per cent share in total asset of the banking system, contributed towards 95 per cent of the total pre-tax profits of the industry
Of the remaining 35 banks, 17 booked net losses and the remaining 18 contributed only 5 per cent in the total earnings.
In terms of the key profitability indicators, the top 5 banks exhibited the highest ROA (return on assets) and ROE (return on equity) ratios followed by the next tier of banks i.e. top 6-10 banks.
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