KARACHI, October 31 2024: In the third quarter of 2024, Pakistan’s listed banks demonstrated resilience, recording a total profitability of PKR 158 billion. While this figure represents a slight decline of 1% year-on-year, it reflects a robust increase of 16% quarter-on-quarter.
Key Highlights:
- Net Interest Income (NII):
- The sector’s NII reached PKR 507 billion, marking a 6% year-on-year increase and a 13% rise from the previous quarter. This growth was attributed to volumetric expansion and favourable repricing impacts.
- Interest income rose by 17% year-on-year to PKR 1.9 trillion, whereas interest expenses increased by 21% year-on-year to PKR 1.4 trillion but declined by 2% quarter-on-quarter.
- Non-Interest Income:
- There was a significant 55% year-on-year increase in non-interest income, totalling PKR 129 billion, largely driven by gains on securities and higher foreign exchange and fee income.
- Conversely, non-interest expenses climbed by 21% year-on-year to PKR 273 billion, primarily due to elevated administrative costs in line with inflation.
- Cost to Income Ratio:
- The cost-to-income ratio stood at 43% in 3Q2024, compared to 41% in the same quarter last year and 45% in the previous quarter.
- Provisioning Charges:
- The sector recorded provisioning charges of PKR 27 billion, up from PKR 21 billion in 3Q2023 and a reversal of PKR 1 billion in 2Q2024. This increase is attributed to the implementation of IFRS-9 and challenges in sectors such as textiles and steel.
- Effective Tax Rate:
- The effective tax rate for 3Q2024 was 53%, compared to 49% in the same quarter last year. This rise is due to additional charges incurred by some banks and higher taxes from subsidiary sales.
- 9M2024 Performance:
- For the first nine months of 2024, bank profitability increased by 7% year-on-year to PKR 447 billion, driven by an 11% growth in NII and a 56% surge in non-interest income.
Bank-Specific Performance:
- Top Performers:
- Meezan Bank (MEBL): PKR 25.8 billion
- United Bank (UBL): PKR 18.7 billion
- MCB Bank (MCB): PKR 18.1 billion
- Habib Bank (HBL): PKR 14.2 billion
- Bank Alfalah (BAFL): PKR 13.3 billion
- Notable Loss:
- Bank Makramah (BML) recorded a loss of PKR 1.7 billion.
- NII Growth Leaders:
- JS Bank (JSBL): +54% YoY
- United Bank (UBL): +30% YoY
- Bank of Khyber (BOK): +28% YoY
- Bank of Punjab (BOP): +25% YoY
- Bank Al Habib (BAHL): +24% YoY
- Declining NII:
- National Bank (NBP), Samba Bank (SBL), Standard Chartered Bank (SCBPL), Habib Metropolitan (HMB), and Habib Bank (HBL) experienced declines in NII, ranging from 2% to 29% year-on-year.
Future Outlook:
Most banks have maintained their dividend payouts, a trend expected to continue given the sector’s healthy profitability. NBP is anticipated to resume dividend payouts in 4Q2024 following clarifications regarding a pension case.
The overall banking universe is currently trading at attractive valuations, with projected price-to-earnings (PE) and price-to-book value (PBV) ratios of 4.0x and 1.0x, respectively, alongside a return on equity (ROE) of 27%.
Our stance on the banking sector remains ‘market weight,’ with Meezan Bank (MEBL) and Habib Bank (HBL) identified as top picks for investors.
