Karachi, March 02, 2021: The Pakistani banks earnings increased by 33 percent YoY in 2020 or by Rs60 billion to reach Rs238 billion. This was driven by earlier re-pricing of Liabilities compared to Assets amidst declining interest rates coupled with higher than expected deposit growth of 22 percent YoY, resulting in Net Interest Income (NII) increasing by 25 percent YoY or Rs155 billion to reach Rs769 billion.
According to Topline report Non Funded Income (NFI) also grew by 16 percent YoY or Rs31 billion to reach Rs224 billion led by capital gains on government papers due to cut in interest rates. These were enough to subdue 173 percent YoY increase in provisioning (up by Rs72 billion to reach Rs113 billion), which were largely precautionary due to COVID-19, even if banks felt their respective loan books were not under particular duress.
The sector’s profits in 4Q2020 declined by 30 percent QoQ on the back of (1) lower NII by 14 percent QoQ and (2) decline in Non Interest Income by 6 percent QoQ. NII was driven down by a greater impact of repricing of Assets vis-à-vis Liabilities, while Non Interest Income was hindered by lower Capital Gains. The provisioning expense decreased by 7 percent QoQ during the period, as earlier majority of the banks booked General Provisions in light of COVID-19.
In absolute terms, the highest yearly profit was earned by HBL (Rs30.9 billion), NBP (Rs30.6 billion), MCB (Rs29.6 billion), MEBL (Rs22.7 billion) and UBL (Rs20.8 billion). In terms of profit growth the highest increases were seen in HBL (+99 percent YoY), NBP (+84 percent YoY), HMB (+82 percent YoY), BOK (+65 percent YoY) and BAHL (+60 percent YoY).
This review of Pak Banks’ profitability for the year 2020, includes a sample of 17 listed banks (out of a total listed 20 banks), representing 98 percent of the banking sector’s capitalization at the PSX.
NII of the Pakistan banks in 2020 was recorded at Rs769 billion, up 25 percent YoY. This was driven by lower Interest Expense (-8 percent YoY) as re-pricing of the interest rate cuts took immediate effect on Liabilities as the interest rates were reduced by a cumulative 625bps as part of relief measures by SBP in light of COVID-19.
The higher than expected industry deposit growth of 22 percent (vs. preceding 5-year average growth of 12 percent) also propelled NII during the year.
In comparison, Interest Earned of Rs1,738 billion, increased by 4 percent YoY due to delayed impact of interest rate cuts on Assets.
In terms of NII, the highest increases were recorded by HMB (+65 percent YoY), NBP (+45 percent YoY), BOK (+42 percent YoY), BAHL (+40 percent YoY) and MEBL (+39 percent YoY).
Non Funded Income increased by 16 percent YoY during 2020 driven by Capital gains on bonds which grew exponentially due to falling interest rates.
Operating Expenses of Rs488 billion grew by just 6 percent YoY with least growth in costs were recorded by NBP (-4 percent), UBL (0 percent), MCB (+1 percent), HBL (+2 percent) and SCBPL (+4 percent).
The lowest Cost to Income were booked by SCBPL (30 percent), HMB (39 percent), MEBL (40 percent), MCB (41 percent) and BOK (44 percent) during 2020.
In 4Q2020, NII decreased by 14 percent QoQ driven by decline in Interest Earned of 10 percent QoQ due to repricing of Assets. To recall, large proportion of PIBs bought in 1H2020 consisted of floaters, which were re-priced in the latter half of the year.
Out of the sample banks, three banks managed to depict an increase in NII during 4Q2020, which were JSBL (+17 percent QoQ), BOP (+13 percent QoQ) and SBL (+7 percent QoQ).
Capital Gains saw a decline of 75 percent QoQ but this was somewhat offset by the 23 percent QoQ growth in Fee Income due to resumption in branch operations following the lifting of COVID-19 related lockdowns.
The Cost to Income was at 55 percent for 4Q2020 compared to 58 percent in 4Q2019 and 46 percent in 3Q2020. The improvement was a function of both higher income along with a limited increase in Operating Expenses.
