Karachi, February 28, 2019: Profit of the top five banks including Habib Bank Limited (HBL), United Bank Limited (UBL), MCB Bank, National Bank of Pakistan (NBP) and Allied Bank Limited (ABL) was declined by 13 percent during the last calendar year 2018 (CY18).
According to an analysis report prepared by Arif Habib Research (AHL Research) , the top five banks combined Profit after tax registered a decline of Rs 12.15 billion (YoY) to Rs 80.97 billion in CY18 down from Rs 93.12 billion in CY17.
The subdued performance was mainly due to incurring pension cost and hefty provisioning amid concerns over international loan book and dismissal equity market performance.
With the hike in policy rate by 425 basis points in CY18, Interest Income recorded a growth of 13 percent to Rs 593.6 billion in CY18 compared Rs 523.9 billion CY17.
Net Interest Income grew by only 4 percent YoY as surging Interest expense by 23 percent YoY rendered the growth. Non-interest income dropped by 4 percent YoY whereas the major decline was observed in gain on sale of securities by 47 percent YoY and dividend income by 19 percent YoY. Similarly, non-interest expense surged by 14 percent YoY during CY18.
The net profit before taxation of these banks posted a decline of 19 percent YoY to Rs128.8 billion as compared to Rs158.2 billion in CY17. Net provision of Rs 27 billion compared to net provision of Rs 2 billion SPLY and pension cost were the major culprit kept top five banks’ earnings defective.
Just to remind, banks have booked pension cost in compliance to the Supreme Court judgment regarding the minimum pension of Rs 8000 per employee. However, NBP has still not booked any pension cost as management has file review petition and expecting the case to be in the bank favor.
The heavy selling by foreigners in banking sector of USD 262.67 million during CY18 coupled with unhealthy profits were the major factors behind the lackluster performance in PSX as baking sector reduced 590 points in Index whereas top 5 banks contributed negatively, lost 1259 points in Index.
AHL Analysts, going forward, are expecting the earnings of banking sector to improve by further hike in policy rate and no further pension cost adjustment. However, NPL’s provisioning to continue as international operations of the banks would face the economic slow-down/regulatory requirements phenomena but we believe hefty recoveries in long term.
Moreover, CY19 seems to be challenging year for banks in term of the Capital Adequacy Ratio (CAR) as banks has to maintain minimum requirement of 12.5 percent for CY19 and additional D-SIB requirement as per the SBP regulations.
