Pakistan Banks: Profits up 56 percent YoY in 3Q2020

Karachi, October 29, 2020: Pakistan Banks’ profitability for 3Q2020, which includes a sample of 18 listed banks (out of a total listed 20 banks), representing 99 percent of the banking sector’s capitalization at the PSX.

The sector’s profits have jumped by 56 percent YoY in 3Q2020 to reach Rs71 billion on the back of higher (1) Net Interest Income (NII) by 33 percent YoY and (2) Non Interest Income by 25 percent YoY. NII was led by greater impact of repricing of Liabilities vis-à-vis Assets amidst declining interest rates, while Non Interest Income was fueled by Capital Gains on government securities.

The provisioning expense increased by 119 percent YoY during the quarter, where majority of the banks booked General Provisions in light of COVID-19. This is a precautionary measure adopted by banks even if they feel that their respective loan book is not under particular duress.

To give perspective, of the sample, the cumulative absolute increase in NII and Non-Interest Income are Rs52bn and Rs12bn (total Rs64bn) respectively, whereas Provisions and Operating Costs are higher by Rs15bn and Rs6bn (total Rs21bn), respectively.

The growth in profitability was limited to 2 percent QoQ in spite of a decline in Provisioning expense by 35 percent QoQ, as (1) NII declined by 2 percent QoQ owing to downward re-pricing of Assets (liabilities were largely repriced in the earlier quarter) and (2) Non Interest Income declined by 8 percent QoQ due to lower Capital Gains.

In absolute terms, the highest quarterly profit has been earned by NBP (Rs11.0bn) followed by HBL (Rs10.1bn), MCB (Rs10.0bn) and MEBL (Rs6.4bn). In terms of profit growth the highest increases were seen in BOK (+348 percent), SNBL (+189 percent), AKBL (+159 percent), BAHL (+135 percent) and NBP (+110 percent) on YoY basis.

NII of the Pakistan banks in 3Q2020 was driven by lower Interest Expense (-36 percent YoY) as re-pricing of the interest rate cuts took immediate effect on the liabilities front.

In comparison, Interest Earned declined by just 13 percent YoY due to delayed impact of interest rate cuts on the Asset side.

In terms of NII, the highest increases were recorded by HMB (+104 percent YoY), NBP (+71 percent YoY), BAHL (+62 percent YoY), AKBL (+50 percent YoY) and BOK (+46 percent YoY).

Interest Expense declined by 21 percent QoQ due to repricing of liabilities, whereas large proportion of PIBs bought in 1H2020 consisted of floaters, which were re-priced in 3Q2020. This resulted in Interest Earned to decline by 12 percent QoQ.

Out of the sample banks, only BAHL managed to depict an increase in Interest Earned by 16 percent YoY for the quarter while the rest saw a decline.

On the other hand, top banks with the highest drop in Interest Expense were ABL (-50 percent YoY), UBL (-48 percent) and MCB (-47 percent).

Non-Interest Income has increased by 25 percent YoY driven by Capital gains which grew exponentially due to falling interest rates.

On a QoQ basis, Capital Gains saw a decline of 28 percent QoQ but this was somewhat offset by the 17 percent QoQ growth in Fee Income due to resumption in branch operations following the lifting of COVID-19 related lockdowns.

Operating Expenses grew by just 5 percent YoY with least growth in costs were recorded by BOK (-8 percent), HBL (-6 percent) and UBL (-1 percent).

The Cost to Income was at 46 percent for 3Q2020 compared to 57 percent in 3Q2019 and 43 percent in 2Q2020.

The improvement was a function of both higher income along with a limited increase in Operating Expenses.

The lowest Cost to Income were booked by SCBPL (34 percent), HMB (34 percent), MCB (36 percent), NBP (38 percent) and MEBL (40 percent).

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