Pakistan’s Listed Banks Report Rs. 137 Billion Profit in 2Q2024, Driven by Strong NII and Non-Interest Income: Topline Securities
Pakistan’s listed banks reported a cumulative profit of Rs. 137 billion in the second quarter of 2024, reflecting a 4% year-on-year (YoY) growth, according to a report by Topline Securities. Excluding the National Bank of Pakistan (NBP), profitability surged by 26% YoY, primarily fueled by an increase in Net Interest Income (NII) and Non-Interest Income.
On a quarter-on-quarter (QoQ) basis, the sector’s profitability declined by 10%, largely due to one-time losses recorded by NBP. Excluding NBP, the sector’s profitability saw a modest 2% QoQ increase. NBP incurred a significant one-time loss of Rs. 49 billion in 2Q2024 following a Supreme Court ruling related to the settlement of a pension case.
Despite a drop in interest rates, the sector’s NII reached Rs. 488 billion, marking a 7% YoY and 4% QoQ growth in 2Q2024. This increase was supported by volumetric growth and a favorable repricing impact. Interest income rose by 35% YoY and 6% QoQ to Rs. 1.8 trillion, while interest expenses climbed by 47% YoY and 6% QoQ to Rs. 1.4 trillion.
The sector’s Non-Interest Income experienced a substantial 49% YoY and 2% QoQ increase, amounting to Rs. 127 billion in 2Q2024, driven primarily by gains on securities and higher foreign exchange income. However, Non-Interest Expenses also rose by 20% YoY and 7% QoQ to Rs. 260 billion, mainly due to increased administrative costs in line with inflationary trends.
The Cost to Income ratio for the sector stood at 45% in 2Q2024, compared to 43% in 2Q2023 and 44% in 1Q2024.
Interestingly, despite high-interest rates, the sector recorded a provisioning reversal of Rs. 1 billion in 2Q2024, a significant improvement from a provision charge of Rs. 12.9 billion in 2Q2023 and Rs. 8.5 billion in 1Q2024. This reversal was attributed to strong asset quality across the sector.
The effective tax rate for 2Q2024 was 49%, slightly lower than 52% in 2Q2023 and 50% in 1Q2024.
In the first half of 2024 (1H2024), the banking sector’s profitability soared by 129% YoY to Rs. 289 billion, driven by a 13% increase in NII to Rs. 881 billion and a 56% jump in Non-Interest Income.
Bank-Wise Performance
The report includes data from all listed banks that have announced their financial results, except for Silk Bank (SILK), which has yet to release its results.
Meezan Bank (MEBL), MCB Bank (MCB), United Bank (UBL), Habib Bank (HBL), and Allied Bank (ABL) led the sector with the highest profits of Rs. 26.7 billion, Rs. 16.8 billion, Rs. 15.3 billion, Rs. 14.0 billion, and Rs. 12.5 billion, respectively, during 2Q2024.
In contrast, National Bank of Pakistan (NBP) and Bank Makramah (BML) reported losses of Rs. 9.1 billion and Rs. 0.6 billion, respectively, during the same period.
In terms of NII growth, Bank of Khyber (BOK), Meezan Bank (MEBL), Bank Al Habib (BAHL), Bankislami (BIPL), and JS Bank (JSBL) recorded the highest YoY increases of 50%, 42%, 42%, 22%, and 12%, respectively, in 2Q2024.
However, Bank of Punjab (BOP), United Bank (UBL), Habib Metropolitan Bank (HMB), Askari Bank (AKBL), Allied Bank (ABL), and Bank Alfalah (BAFL) saw YoY declines in NII of 23%, 22%, 16%, 7%, 3%, and 2%, respectively, in 2Q2024.
Dividend Payouts and Sector Outlook
Most banks maintained their dividend payouts during 2Q2024, and the report anticipates this trend to continue amid the sector’s robust profitability. For NBP, the report expects dividend payouts to resume in 4Q2024 following clarification on the pension case.
Topline Securities highlighted the attractive valuations of the banking sector, with 2024E PE and PBV ratios of 3.5x and 0.9x, respectively, and a Return on Equity (ROE) of 27%. The report maintains a ‘market weight’ stance on the banking sector, with Meezan Bank (MEBL) and Habib Bank (HBL) as its top picks for investors.
