KARACHI - All major banks listed with Karachi Stock Exchange showed lacklustre performance during the second quarter of CY08, as the profit after taxation of the banking sector plunged down by 18 per cent to Rs15.3 billion in 2QCY08 as compared to Rs18.7 billion in same period of a year back. Analysts attributed the decline in earnings to high provisioning and a general slow down in the economy. While on first half yearly basis the profit after taxation of banking sector was down by 16.8pc. Banking spreads were higher on average during April and May-08 before coming down approximately 56bps during June-08 which was expected after the interim monetary policy announced by the SBP imposed a minimum rate of 5.0pc on PLS saving accounts. The average spread for 2QCY08 was 7.09pc compared to 7.07pc for 1QCY08. Mark up income increased by approximately 20.3 per cent on Year on Year basis. While mark up expenses was up around 22.2 per cent compared to the corresponding period of last year. Total provisioning by the banks stood at Rs10.6b in 2QCY08 against Rs3.0b in corresponding period of last year, reflecting an increase of 253 per cent. This was in part due to the FSV regulation which increased provisioning as loans changed "buckets"(substandard, doubtful and loss). Analysts do not foresee any significant increase in provisioning from the current levels during CY08E as most of the banks have already provisioned adequately. Tier 1 and 2 banks increased their provisioning by approximately 273.2 per cent and 226.3 per cent respectively, YoY. Analysts were of the view that banking sector and economic performance are closely linked and with the current slow down expected to continue through CY08E, sector profitability is likely to consolidate as well. Net interest margins are expected to remain under pressure given that the change in monetary policy impacts lending rates first and then deposit rates.  With KIBOR hovering around 14.5 per cent, banks may be able to re-price their assets but only to a certain extent; beyond that, given the already high cost of doing business will put additional strain on corporate earnings and hence might affect asset quality. Advances growth is expected to remain strong backed by government borrowing and demand from the power and agriculture sectors. The banks, which have shown dull performance during the quarter ended on June 30, 2008 were National Bank of Pakistan posted Rs3.323 billion in 2QCY08 versus Rs4.683 billion in same period of last year, depicting a sharp decline and Bank of Punjab, KASB Bank, The Bank of Khyber were also in the list of showing negative earning during the said quarter.