Karachi, February 25, 2024 – The banking sector in Pakistan has witnessed a remarkable surge, with financial institutions reporting an impressive 83% growth in profit after tax for the calendar year 2023, thanks to the record high interest rates prevailing in the country.
Analysts at Arif Habib Limited have labeled the past year as historic for the banking sector, noting that some banks have paid out their highest-ever dividends on an annual basis. The financial results announced so far reveal an extraordinary 83% year-on-year (YoY) increase in profitability and an 82% surge in dividends.
This unprecedented growth is largely attributed to the 600 basis points hike in the policy rate during 2023. The decision to increase interest rates has proven to be a significant driver for the banking sector’s profitability, contributing to a substantial increase in earnings and dividends.
Commenting on this trend, analysts at Topline Securities Limited highlighted that banks now constitute 19% of the total market capitalization of the Pakistan Stock Exchange (PSX). The banking sector’s robust performance has become a key factor influencing the overall dynamics of the stock market.
Over the past few years, the earnings of banks in Pakistan have been consistently impressive. The top 10 banks, in particular, have witnessed an annual increase of 31% in profits over the last five years. In 2023 alone, these banks recorded an astonishing earnings growth of 86%, underscoring the resilience and profitability of the banking industry.
Mohammad Sohail, CEO and Founder of Topline Securities, emphasized that despite the stellar financial performance, the share prices of listed banks on the Pakistan Stock Exchange (PSX) remain surprisingly low. He pointed out that these banks present an attractive investment opportunity with rock-bottom Price-to-Earnings ratios, appealing Price-to-Book ratios, impressive Return on Equity, and enticing dividend yields.
Sohail sees the current scenario as a golden opportunity for savvy investors to capitalize on the undervalued banking stocks. The combination of robust financial performance and favorable valuation metrics makes the banking sector an attractive prospect for those looking to invest in the Pakistani stock market.
As the banking sector continues to play a pivotal role in driving economic growth, the record-high interest rates have undoubtedly become a catalyst for increased profitability. The positive trajectory of the banking industry is expected to have a cascading effect on the broader economy, contributing to the overall financial stability and prosperity of Pakistan. Investors are now closely watching how this trend unfolds and the potential impact it may have on the country’s financial landscape in the coming years.
