KARACHI - Commercial banks earnings and profitability has sharply declined to Rs 26.7 billion during first half of calendar year 2009 as against earnings of Rs 38.8 billion in the corresponding period of last year. In terms of growth, the sectors profitability has seen a decline of 31 per cent during Jan-June 2009. This contraction attributed to higher provisions for Non Performing loans (NPLs) and higher impairment provisioning. After a depressing 1Q2009, earnings of listed commercial banks continued to remain depressed in 2Q2009 as well. However, the sector deposits and advances growth is projected to be around 7 per cent and 5pc respectively for the entire year of 2009. Despite improved NPL trend, analysts still expect 2009 to be a difficult year for the sector with earnings likely to decline by 8 per cent. It is important to note that since the last week of July, major listed banking companies have started to announce their 1H2009 financial results, according to which, commercial banks Net Interest Income (NII) increased by 19 per cent while Non Interest Income depicted sluggish trend during Jan-June this year. JS Research compiled this consolidated figure of sector profitability while taking up 24 banks, out of 25 banks listed at Karachi Stock Exchange for its analysis. BOP has been excluded as the bank is yet to declare its 1H2009 results. According to JS Research, as of March 2009, sample banks represent more than 95 per cent of the total listed sectors deposits and assets. JS said that the decline in earnings was primarily driven by heavy provisioning for NPLs and higher impairment provisioning as total provisions for NPLs surged to Rs 35.0 billion (US$435million) as against Rs 20.2 billion (US$313 million) in 1H2008, an astounding growth of 74 per cent largely due to slowdown in economic growth. Moreover, stock market crash in the second half of 2008 resulted in impairment loss of Rs 4.2 billion as against only Rs 357 million recognized in 1H2008. Moreover, amid sharp decline in KIBOR, 2Q2009 has seen pressure on spread and resultantly NII. On a positive note, however, there seems to relative easing on the quantum of NPL acceleration as reflected by 45 per cent on quarter-on-quarter basis decline in incremental NPLs in 2Q2009. While profits remained subdued due to high provisions, Net interest income (NII) continued to post decent growth rising by 19 per cent to Rs 122.8 billion, amid higher spreads (7.6 per cent in 1H2009). In contrast, relatively week equity market conditions kept non interest income largely in check as it was recorded at Rs 40.7b similar to 1H2008. Fee income the largest component in non interest income recorded a growth of 9 per cent and stood at Rs 20.4b.