Karachi, May 2, 2024 – Pakistani listed banks have seen a significant increase in profitability in the first quarter of 2024, with a reported gain of 21 percent year-on-year (YoY), reaching a total of Rs 152 billion.
According to Sunny Kumar, a Research Analyst at Topline Securities Limited, this surge in profitability of Pakistani banks is primarily due to increases in Net Interest Income (NII) and Non-Interest Income, set against a backdrop of high interest rates.
In U.S. dollar terms, the profitability of these banks has also risen by 13 percent YoY, amounting to approximately US$545 million in 1Q2024.
The report from Topline Securities details that the NII for the sector reached Rs 433 billion in 1Q2024, up from Rs 358 billion in 1Q2023, an increase of 21 percent YoY. This rise is linked to the average policy rates, which stood at 22 percent in the first quarter of 2024 compared to 18 percent in the same quarter of the previous year. Specifically, interest income saw a 57 percent YoY increase, reaching Rs 1.7 trillion, while interest expenses surged by 74 percent YoY to Rs 1.3 trillion.
Non-interest income also showed a robust growth, increasing by 65 percent YoY to Rs 125 billion in the first quarter of 2024, primarily due to gains on securities. Meanwhile, non-interest expenses rose by 22 percent YoY to Rs 243 billion, reflecting higher administrative costs that align with current inflation trends.
The cost-to-income ratio of the sector has seen a slight improvement, moving from 46 percent in 1Q2023 to 44 percent in 1Q2024.
Interestingly, despite the prevailing high interest rates, the sector experienced a significant 46 percent YoY decrease in provisioning charges, which totaled Rs 8.5 billion in 1Q2024. This reduction is mainly attributed to the strong asset quality maintained by the banks during the period.
On a quarter-over-quarter (QoQ) basis, however, listed banks’ profitability slightly declined by 2 percent in PKR terms and 1 percent in USD terms. This slight drop in earnings is mainly due to a decrease in NII, which was impacted by falling Net Interest Margins (NIMs) as the Karachi Interbank Offered Rate (KIBOR) decreased to an average of 21.3 percent in 1Q2024 from 21.9 percent in 4Q2023.
The effective tax rate for banks in 1Q2024 was reported at 50 percent, compared to 42 percent in the same quarter of the previous year and 56 percent in the last quarter of 2023.
Sunny Kumar highlighted that the financial results encompass all listed banks that have announced their results, with the exception of Silk Bank (SILK), which has yet to disclose its financial performance for the period.
This marked improvement in the profitability of Pakistan’s banking sector indicates a robust financial environment and suggests potential growth trajectories for the industry despite some underlying challenges.
