Karachi, December 6, 2024 – Conventional banks in Pakistan are preparing for a potential profit surge following the State Bank of Pakistan’s (SBP) upcoming changes to the profit calculation framework for savings accounts, set to take effect on January 1, 2025.
This adjustment is seen as a key strategy to mitigate the impact of anticipated interest rate reductions in the coming year, particularly in 2025. Analysts at Arif Habib Limited estimate that sector earnings will increase by 0.5%, excluding National Bank of Pakistan (NBP), which is expected to experience a substantial rise in profitability. This marks a slight recovery from earlier projections that suggested a 6.4% decline in profits for the sector.
Banks that rely heavily on institutional deposits, such as Bank of Punjab (BOP), Askari Bank Limited (AKBL), and NBP, are expected to benefit the most from these changes. However, Islamic banks like Meezan Bank (MEBL) and First Abu Dhabi Bank (FABL) may face narrower profit margins as a result of the new framework.
The SBP’s decision to remove the Minimum Deposit Rate (MDR) requirement for savings deposits from financial institutions, public sector enterprises, and public limited companies is particularly significant for conventional banks. This policy shift is expected to enhance profitability substantially. As of September 2024, the total local currency savings deposits held by the banks under Arif Habib’s coverage amounted to PKR 10.6 trillion, representing 42.9% of the country’s total savings deposits. The removal of MDR, coupled with other factors, is anticipated to increase the profitability of the banks covered by the research by PKR 4.93 per share in 2025, a notable upward revision from previous forecasts. Among the banks poised to benefit the most are BOP, with a projected profit increase of 61%, and AKBL, which is expected to see a rise of 46%.
In contrast, Islamic banks will face new challenges as the SBP introduces an MDR for Islamic Banking Institutions (IBIs) starting in January 2025. Under this framework, IBIs will be required to offer at least 75% of the weighted average gross yield on their investment pools for PKR savings deposits, excluding those from certain sectors. This stricter calculation, which considers monthly gross earnings relative to average assets, is expected to exert downward pressure on the profitability of MEBL and FABL, with potential reductions of PKR 9 and PKR 1 per share, respectively.