Pakistani Listed Banks Post Record Profitability in Q2 2023

Pakistan’s listed banks’ profitability increased to a record Rs. 131 billion (up 3x YoY) in 2Q2023. According to Topline Securities, this was primarily driven by a significant jump in Net Interest Income (NII) amid high interest rates, and balance sheet growth. In US$ terms, listed banks’ profit was up 2x YoY to US$ 459 million in 2Q2023. NII of the sector clocked in at Rs. 420 billion in 2Q2023 vs. Rs. 243 billion in 2Q2022 up 73 percent YoY as average policy rates during 2Q2023 remained at 21 percent vs. 13 percent in 2Q2023. Interest income was up by 97 percent YoY to Rs. 1.4 trillion, whereas interest expense was up by 109 percent YoY to Rs. 946 billion. Non-interest income of the sector was down marginally by 1 percent to Rs. 86 billion in 2Q2023 mainly due to a decline in FX income. On the other hand, non-markup expense was up 33 percent YoY to Rs. 217 billion in 2Q2023 due to higher admin expense which is in line with inflation. The cost to Income ratio of the sector clocked improved to 43 percent in 2020-23 vs. 49 percent in 202022. The provisioning charge of the sector increased by 79 percent YoY to Rs. 12.9 billion in 2020-23 mainly due to high interest rates and Pakistan’s macroeconomic conditions. On a QoQ Basis, listed Banks’ profitability was only up 4 percent in PKR while down 5 percent in US$. This is mainly due to the implementation of a 10 percent super tax which was announced in the Federal Budget FY24. The effective tax rate for 2Q2023 clocked in at 52 percent in 2020-23 vs. 42 percent in 1Q2023. In 1H2023, the sector’s earnings were up 2x YoY to Rs. 257 billion (+42 percent YoY at US$ 944 million) led by higher NII which was up 68 percent YoY. Furthermore, a lower effective tax rate of 48 percent in 1H2023 vs. 58 percent in 1H2022 also led to higher profit growth. The report studies all banks that have announced their financial results except for Silk Bank (SILK), which has not yet announced its results. Bank wise, Meezan Bank (MEBL), National Bank (NBP), MCB Bank (MCB), Habib Bank (HBL), and United Bank (UBL) posted the highest profits of Rs. 17.2 billion, Rs. 15.8 billion, Rs. 14.7 billion, Rs. 13.1 billion, and Rs. 13.1 billion, respectively, during 2020-23. On the other hand, Summit Bank (SMBL) recorded a loss of Rs. 799 million in 2Q2023. In terms of NII growth, Standard Chartered (SCBPL), Soneri Bank (SNBL), BankIslami (BIPL), Meezan Bank (MEBL), and Habib Metropolitan (HMB) recorded the highest growth of 158 percent YoY, 128 percent YoY, 113 percent YoY, 107 percent YoY, and 104 percent YoY respectively. Going ahead, the report sees NII to improve given the rising Policy Rate which will bode well for the sector’s profitability. There is a further probability of a further hike in interest rates due to rising inflation and falling PKR against the US dollar.