Karachi, October 30, 2023 – Pakistan banks have experienced an astounding 95 percent growth in profit on a year-on-year (YoY) basis during the third quarter of 2023.
A comprehensive analysis conducted by Topline Securities Limited reveals that listed banks in Pakistan achieved record profitability, totaling Rs163 billion, marking a significant YoY increase.
This remarkable growth can be primarily attributed to a substantial rise in Net Interest Income (NII), driven by elevated interest rates and balance sheet expansion. In US dollar terms, the profit of listed banks also surged by 50 percent YoY to reach US$560 million in the third quarter of 2023.
NII for the sector reached Rs481 billion in the third quarter of 2023, compared to Rs283 billion in the same quarter of the previous year, signifying a remarkable 70 percent YoY increase. This increase was largely due to an average policy interest rate of 22 percent during the third quarter of 2023, up from 15 percent in the same period of the previous year. Interest income saw an impressive 79 percent YoY growth, reaching Rs1.6 trillion, while interest expenses increased by 84 percent YoY, reaching Rs1.1 trillion.
Non-interest income of the sector declined by 5 percent YoY to Rs79 billion in the third quarter of 2023, primarily due to losses on securities and a decrease in foreign exchange income. On the other hand, non-markup expenses rose by 30 percent YoY to Rs229 billion in the third quarter of 2023, driven by increased administrative expenses in line with inflation.
The cost-to-income ratio for the sector improved to 41 percent in the third quarter of 2023, compared to 48 percent in the same quarter of the previous year. Interestingly, despite the high-interest rates, the provisioning charge of the sector declined by 9 percent YoY to Rs14.7 billion in the third quarter of 2023, primarily due to robust asset quality.
On a quarter-on-quarter (QoQ) basis, the profitability of listed banks increased by 24 percent in PKR and 22 percent in US$. This substantial QoQ profit growth was primarily due to the absence of the higher tax recorded in the second quarter of 2023 when a 10 percent super tax was implemented as part of the Federal Budget for FY24. The effective tax rate for the third quarter of 2023 was 48 percent, down from 52 percent in the second quarter of 2023.
In the first nine months of 2023, the sector’s earnings grew by 102 percent YoY, reaching Rs421 billion (a 44 percent YoY increase in US$1.5 billion), primarily driven by higher NII, which rose by 69 percent YoY. Additionally, a lower effective tax rate of 48 percent in the first nine months of 2023, compared to 55 percent in the same period of the previous year, contributed to the enhanced profit growth.
Bank-wise, Meezan Bank (MEBL), MCB Bank (MCB), Habib Bank (HBL), United Bank (UBL), and Standard Chartered (SCBPL) posted the highest profits during the third quarter of 2023, with figures of Rs25.5 billion, Rs19.7 billion, Rs16.6 billion, Rs15.0 billion, and Rs12.7 billion, respectively. On the other hand, Summit Bank (SMBL) recorded a loss of Rs2.1 billion in the same period.
In terms of NII growth, Bank of Khyber (BOK), Soneri Bank (SNBL), JS Bank (JSBL), Standard Chartered (SCBPL), and BankIslami (BIPL) achieved the highest growth rates of 154 percent YoY, 134 percent YoY, 131 percent YoY, 106 percent YoY, and 104 percent YoY, respectively, in the third quarter of 2023.
During the third quarter of 2023, several banks issued surprise dividends, supporting the share prices of listed banks. Moving forward, a robust dividend payout is expected to continue, given the sector’s strong profitability.
The Topline Banking Universe is currently trading at compelling valuations, with a price-to-earnings (PE) ratio of 2.7x and a price-to-book value (PBV) of 0.7x, coupled with a return on equity (ROE) of 28 percent. This data indicates the attractiveness of the banking sector for investors.
This remarkable profit growth in Pakistan’s banking sector during the third quarter of 2023 reflects the resilience and growth potential of the country’s financial institutions.
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