Banks have hit their highest-ever quarterly earnings during 3QCY22. The top 16 banks have posted profits of Rs. 85 billion, depicting a surge of 26 percent year-on-year (YoY).
According to Ismail Iqbal Securities, the higher interest rates have helped boost Net Interest income (NII), while healthy fees and FX income have been one of the major revenue drivers.
Provisions have increased but are still on the lower side, especially on loan portfolios and banks have so far remained largely unscathed from the COVID and interest rate shock. The only spoiler has been the change in the tax regime, which has led to an effective tax rate of 52 percent versus 41 percent in the same period last year.
The NII of the banks has increased by 17 percent on a Quarter on Quarter (QoQ) basis due to lagged impact of asset repricing. On the company level, SCBL (+42 percent QoQ), HMB (+35 percent QoQ), AKBL (+34.9 percent), MEBL (+32.2 percent), and BIPL (+25 percent) were the top performers while BOP (-9.5 percent) and NBP (+0.7 percent) underperformed.
Non Markup income declined 5 percent QoQ mainly due to a slight decrease in both fees and FX income. Despite the expectation of significant normalization, FX income remained robust and showed only a slight decline of 2.7 percent QoQ.
The provisions increased sharply by 135 percent QoQ to Rs. 15 billion. The increase in provisions was mainly contributed by BAFL’s subjective provision and UBL’s provision on GOP Eurobonds. The Opex increased by 8.3 percent QoQ due to high inflationary pressures in the economy.
Industry deposits growth came at 15 percent YoY, while ADR improved to 48.6 percent versus 47.7 percent in June and 46.9 percent in the same period last year. HBL shed 10 percent of its deposits QoQ which has taken its ADR over 50 percent. On the other hand, UBL increased its deposits by 9.5 percent QoQ, which pushed its ADR below 40 percent, resulting in ETR of 59 percent.
Though a majority of assets and deposits have been repriced, the report expects NII to improve further as asset repricing from the hike of 125bps in July is yet to kick in. The provisions might see some uptick as the impact of the economic slowdown will be more evident in coming quarters, while provision on sovereign bonds might also increase for some banks if the GOP Eurobond prices do not recover in the ongoing quarter.
The deposit growth is expected to be muted in the December 2022 quarter as banks would try to achieve advance-to-deposit ratio (ADR) targets (the target is based on last day of the year).