KARACHI - Banks deposits sharply increased to Rs4.8 trillion during the second quarter (April-June) of the current calendar year. Banking industry deposits witnessed a healthy 8 per cent growth in 2Q2010 when compared to a lower growth of 2.3 per cent during the same quarter last year. Banks credit-offtake stood at 2 per cent taking industry advances to Rs3.3 trillion in 2Q2010. The sector fundamentals in 2Q2010 have remained broadly comparable to the previous quarters (1Q2010) however, a somewhat encouraging trend in both deposits and credit offtake has been seen in the recent data reported by the SBP. According to SBP, deposit growth has outpaced advances is further visible in investments (up 7Ppc in 2Q) and tapering ADR, which is down from 74.8 per cent in March to 69.6 per cent at June end. Further, investments to deposits ratio increased by 15bps to 38.2 per cent in the same period. The data further showed that net Interest Income growth averaged a mere 3 per cent YoY in 1Q2010, and it has been seen in 2Q2010 results as well. On a YoY basis average spreads for Apr-May 2010 registered at 7.31 per cent compared to 7.51 per cent in the same period last year, which would put slight pressure on NIMs. Non Interest Income on the other hand although is expected to be higher on a YoY basis, could lose momentum QoQ-wise as opportunities for capital gains remained lower with the benchmark Index having lost 5.5pc in 2Q2010. Total provisions were recorded at Rs11 billion in 2Q2010, compared to Rs27 billion in 1Q2010 as per data reported by SBP; however this figure could rise once accounts are finalised. Moreover, recent relaxation of the FSV benefit pertaining to land will further play some role in improving the profitability of mid tier banks. It is anticipated that provisions will decline on account of lower NPL accretions and FSV benefit. Further, Net Interest Income (NII) growth to be flat on account of lower earning yields, whereas any growth in earnings is expected to come from lower provisions (particularly owing to the FSV benefit).