September 05, 2013
11
Nepra advised to provide Rs31bn relief for masses ISLAMABAD: With the exception of Karachites, the inflation stricken masses are likely to benefit from the Rs31 billion relief after the Ministry of Water and Power issued an advice in this regard to the National Electric Power Regulatory Authority (Nepra). Official document available with Dawn.com reveal that Nepra had approved the Reference Fuel Cost (RFC) for the financial year 2012-13 in April 2013 only due to late submission of applications by the DISCOs. As per rules, after approval from Nepra, the Ministry of Water and Power issues gazette notification on RFC, which is then implemented. The ministry had issued gazette notification of RFC on August 5, 2013 and implemented it on July 1, 2012. Interestingly, before the issuance of a notification of RFC for the FY 2012-13 by the ministry, Nepra had approved the fuel adjustment for a period starting from July 2012 to May 2013 on the basis of a reference fuel cost of 2011-12. A sum of 74 billion unit of electricity was sold to the DISCOs during July 2012 to May 2013. The documents further discloses that Nepra on the basis of RFC of FY 2011-12 had increased the power tariff by Rs0.85/ unit for the month of July 2012 and also decreased the power tariff by 0.5/unit in
August 2012. However, the Nepra approved to jack up the power tariff by 0.5/unit for September 2012, Rs0.39/unit for October 2012, Rs0.91/ unit for November 2012, Rs1.13/unit for December 2012, Rs1.55/unit for January 2012, Rs0.63/unit for February, Rs1.33/unit for March 2012, Rs0.74/unit for April and Rs1.12/unit for May 2012. After the notified RFC by the Ministry of Water and Power for the month of July 2012, the electricity price would witness a decline and the difference would cause relief to the masses that is expected soon within the next couple of days. And, with effect to the notified RFC of the power ministry, the power price would go up by Rs0.33/unit instead of Nepra’s approved Rs0.85/unit. Similarly, Rs0.45/unit decrease for August 2012 instead of Rs0.5/unit reduction, Rs0.36/unit for September 2012 instead of only Rs0.5/unit, Rs0.46/unit decrease for October 2012 instead of Rs0.46/unit, Rs0.26/unit hike for November 2012 instead of Rs91/unit, Rs1.06/unit raise instead of Rs1.13/unit hike for December 2012 earlier approved by Nepra. Likewise, instead of Rs1.55/unit hike only Rs0.97/unit increase for January 2013, Rs43/unit raise instead of Rs0.63/unit for February, Rs0.83/unit decrease instead of approved Rs1.33/unit hike for March, Rs1.54/unit reduction for April instead of Rs0.74/unit approved increase, and for the
month of May 2013, the per unit of electricity price seems to reduce by Rs0.70 instead of earlier approved increase of Rs1.12/unit by Nepra. When contacted, Zargham Isahak a spokesman of the Ministry of Water and Power said that Nepra had been advised to provide relief to the masses by reviewing the fuel adjustment of a period starting from July 2012 to May 2013 during a high-level meeting held in August. Requesting anonymity, Nepra officials also said that a decision regarding provision of relief in per unit of power prices to the common man was likely soon. They also told that at this stage only two mechanism/options were under
consideration to pass on Rs31 billion worthy relief to the general public. Under option one; Nepra would arrange public hearing on fuel adjustments of 11 months in a bid to pass on total relief to the masses in only one go. And, under the second option, it has also been considered that Nepra while determining annual tariff for the Fiscal Year 2013-14, would decrease the per unit power price of electricity by average Rs1.70/unit. “A decision to choose any one option out of the two is likely during upcoming week but consumers of Karachi Electric Supply Company (KESC) would not benefit with the relief,” an official at Nepra said.
Nepra advised to provide Rs31bn relief for masses Banks’ quest for profitability is taking a new turn, and this time quite in the right direction in view of the emerging business scenario for them. Now in the first half of 2013, banks have also tried to boost profits by increasing their non-interest income, and some of them have succeeded remarkably. In the past few years, banks usually made profits through investment in government papers, to compensate for lesser lending to the private sector, and a squeeze in banking spreads due to monetary easing. Bank deposits grew by 9.5 per cent during the first half of this year — more than double from the 4.1 per cent growth seen in the year-ago period.
been lower, had the government not opted for clearing part of the Rs500 billion circular debt in May-June by borrowing from banks through T-bills and Pakistan Investment Bonds (PIBs). “This, on one hand, helped us employ surplus funds instead of allowing them to remain idle. But on the other, it made lending to the private sector a secondary priority,” says the treasurer of a local bank. “Additionally, as the stock market continued its upward journey, banks’ net lending to non-bank financial institutions also fell. So there wasn’t much choice for banks but to continue to invest in T-bills and PIBs.”
Witnessing a decline in their core interest incomes, most banks increased their non-interest incomes through investment advisory, brokerage and custodian services.
“In a low interest rate environment, banks should ideally strive to boost non-interest incomes because that’s where a huge untapped demand exists, and exploiting it doesn’t carry the kind of risk associated with private lending,” says the head of a large local bank. Combined pre-tax profits of the five major local banks — ABL, HBL, MCB Bank, NBP and UBL — at Rs41.1 billion in the first half of 2013, was down 12 per cent from the year-ago period, according to a research report from Topline Securities. In overall 2012, profits of these banks had risen by six per cent to Rs88.3 billion. For the last few years, banks have relied too heavily on investment in government papers, and this continued in the first half of 2013 as well, when their overall investment rose 6.2 per cent over the first half of 2012. Against that, their overall lending remained almost static at just 0.03 per cent. Banks’ investment in government securities could have
Citibank’s ADR also inched up from 28 per cent in the first half of 2012 to 29 per cent in the first half of 2013, but that improvement is deceptive in the sense that it emerged because of a massive decline in the bank’s deposits — down from 64 billion to Rs38 billion. The bank’s actual advances also declined from Rs18 billion in January-June 2012 to Rs11 billion in January-June 2013. Bankers say that in the second half of the current year, challenges for the banking industry would be different than those in the same period of last year. “First of all, the rescheduling of the monetary policy announcement indicates that the policymakers are buying time to build arguments for keeping the interest rates unchanged, instead of hiking them,” says a senior executive of a foreign bank. “Secondly, we don’t think government borrowing from banks would be as huge now as in the past, because tax revenue has started rising fast and big foreign exchange inflows, including that from an IMF loan, are about to come in,” adds the senior executive.
But as monetary easing continued, and the minimum return of six per cent on savings deposits remained unchanged, banks utilised most of their surplus funds in government papers. And as the yields on government papers remained flat or fell at times, their profitability was hurt.
UBL and Bank Alfalah reported that their non-interest income in the first half of 2013 shot up 31 per cent and 26 per cent respectively, to Rs9.4 billion and about Rs3.9 billion. Some other banks, including state-run NBP, also reported a rise in non-interest income.
81 per cent from 71 per cent in January-June 2012.
A falling trend in overall net lending by banks was also reflected in banks’ advances to deposits ratio (ADR). The ADR of HBL and UBL, for example, declined to 38 per cent and 47 per cent respectively in January-June 2013, from 45 per cent and 52 per cent in the same period of 2012. The ratio for state-run NBP, which generally remains higher than that of its peer banks, also fell to 57 per cent from 61 per cent, as it resorted to heavier provisioning against bad loans. The ABL, on the other hand, saw its ADR fall from about 53 per cent to 46 per cent for a different reason — a big growth in its deposit base and a small decline in advances. It’s deposits rose from Rs514 billion in December 2012 to Rs570 billion in June 2013, whereas its total advances shrank from Rs271 billion to Rs262 billion. Some smaller banks, however, recorded a rising trend in their advances to deposits ratios, chiefly because they either had to spend little on provisioning of bad loans, or they lent more to selected growing segments of private sector businesses like textiles and food and beverages. NIB Bank, for example, improved its January-June 2013 ADR to
But industries are growing faster than before; publicsector enterprises are being revamped and injected with fresh liquidity, and big-ticket development projects are likely to be initiated. All of this indicates that private sector credit demand would be strong. Now it depends on banks on how they can exploit it to their benefit. Bankers admit that the core issue in profitability of banks is not limited to finding ways for increasing net interest income, which is earning on advances (excluding the cost involved) minus spending on paying returns on deposits (including the cost of their mobilisation). They admit that even in the current low interest rate environment, the banking spread is not too bad — 538 basis points in July 2013, based on fresh lending and deposit rates, including zero mark-up but excluding interbank transactions. “Regardless of which way the monetary policy moves, if banks need to maintain their profitability or increase it further, they need to bear in mind that sustainable profitability originates from both interest and non-interest incomes, and also from a diversified class of clients from both public and private sectors,” says a senior central banker.