Karachi, July 10, 2025 – Pakistan’s banks are gearing up to report bumper earnings for the second quarter of calendar year 2025 (2QCY25), signaling continued financial strength and strategic resilience in a shifting interest rate environment.
According to a detailed analysis released by Arif Habib Limited (AHL) on Thursday, the banking sector has outperformed expectations and the broader market.
AHL’s report highlights that its banking universe delivered a total return of 24% during the outgoing quarter, outperforming the KSE-100 Index by 17%. This robust performance is attributed to strong balance sheet management and income diversification strategies adopted by banks.
For 2QCY25, the banks under AHL’s coverage are expected to post a 4.5% year-on-year (YoY) increase in cumulative earnings. Among the standout performers, United Bank Limited (UBL) is projected to report the highest YoY earnings growth of +126%, followed by Askari Bank Limited (AKBL) with +51%, and Habib Bank Limited (HBL) with a more modest 5% increase.
Despite facing headwinds from declining asset yields, which are putting pressure on interest income, banks have been actively optimizing their cost structures. They are shifting toward low-cost deposit mobilization to mitigate the impact on Net Interest Margins (NIMs), which are expected to contract due to a 32-basis-point drop in KIBOR during the quarter.
Notably, the earnings outlook remains positive, thanks to an increase in non-interest income, particularly from fee-based earnings such as digital transactions, trade finance, and asset management services.
Cost containment remains another bright spot. Operating expenses are expected to remain under control, supported by easing inflation. The Consumer Price Index (CPI) averaged just 2.33% in 2QCY25, compared to 13.9% in the same period last year. This has helped banks maintain a favorable cost-to-income ratio of approximately 38%.
While sector earnings are expected to dip slightly on a quarter-on-quarter basis, dividend payouts are likely to continue, backed by strong Capital Adequacy Ratios (CARs) that exceed regulatory thresholds.
From a balance sheet perspective, the sector’s deposits reached PKR 32.7 trillion, reflecting a 5.2% YoY increase. However, advances declined by 4.0% QoQ, pushing the Advance-to-Deposit Ratio (ADR) down to 39.5%.
With stable fundamentals and strategic agility, banks are well-positioned to sustain strong earnings momentum through the remainder of the year.