KARACHI, May 12: Although the banking industry is in profit, a number of banks are in trouble and their existence is even under threat.

Banking sources said nine banks were still facing acute problem of raising deposit which kept them far from reaching close to meet the minimum capital requirement set by the State Bank. These are mostly small and medium sized banks.

Bankers said their problem had deepened over the past four years because a major chunk of deposits had been held by large local or foreign banks.

The banking industry showed handsome profits last year and the first quarter results of this year were the same. Most of these profits were earned by five large banks and the rest by foreign banks and some medium sized banks.

“The State Bank has adopted lenient attitude towards the paid-up capital requirement not attained by at least nine banks and gave them space to either improve or merge with others,” a senior banker said.

Banks were required to raise their MCR to Rs23 billion which was slashed to only Rs10 billion. The banks are now required to raise their paid-up capital to Rs8 billion by 2011, Rs9 billion by 2012 and Rs10 billion by Dec 31, 2013.

The banking sector recently witnessed sudden movements regarding buying and purchasing activities. The HSBC, a foreign bank, wants to sell its Pakistan operations, while a fairly large local bank, Askari Bank, shows its inability to continue without strong backing. The State Bank has allowed due diligence for these two banks.

A few more banks are also eyeing options of sell-off or merger with others.

Bankers of small banks said economic situation and political insecurity had diverted deposits towards a few large banks, while offers for much higher return by small and medium sized banks were not attracting depositors.

The glut of deposits in large banks resulted in poor return to depositors. The State Bank last month forced the banks to pay minimum six per cent return on savings products.

However, the problem of about nine banks remained unresolved and their effort to improve deposits and paid-up capital have failed so far. Bankers said the banking industry’s attractive profits were not enough for foreign banks to stay in Pakistan and wait for improvement in economy. Although foreign banks have been in profit, their size of profit is not large enough to force to them continue to work for better days.

The poor economic growth rate and energy crisis have eroded hopes for quick recovery of economy, leaving no option for competitive banks to remain in the field.

Foreign banks have been curtailing their international operations as part of restructuring at home in the wake of financial crisis and now the debt crisis which trapped the entire European Union.

“We are not doing banking like the foreign banks or competitive banks do in the financial sector. We earn by investing in government papers which pay as high as 12 per cent,” said a senior official of a government-owned bank.