Pakistan listed banks’ profitability increased to record Rs. 163 billion, up 95 percent year-on-year (YoY) in 3Q2023.
According to Topline Securities, this was primarily driven by a significant jump in Net Interest Income (NII) amid high interest rates, and balance sheet growth. In US$ terms listed banks profit was also up 50 percent YoY to $560 million in 3Q2023.
NII of the sector clocked in at Rs. 481 billion in 3Q2023 versus Rs. 283 billion in 3Q2022, up 70 percent YoY as average policy rates during 3Q2023 remained at 22 percent versus 15 percent in 3Q2022.
Interest income was up by 79 percent YoY to Rs. 1.6 trillion, whereas interest expense was up by 84 percent YoY to Rs. 1.1 trillion.
Non-interest income of the sector was down by 5 percent YoY to Rs. 79 billion in 3Q2023 mainly due to loss on securities and a decline in FX income. On other hand, non-markup expense was up 30 percent YoY to Rs. 229 billion in 3Q2023 due to higher admin expense which is in line with inflation.
Cost to Income ratio of the sector improved to 41 percent in 3Q2023 versus 48 percent in 3Q2022. Interestingly despite high interest rates, provisioning charge of sector declined by 9 percent YoY to Rs. 14.7 billion in 3Q2023 mainly due to strong asset quality.
On QoQ basis, the listed Banks’ profitability was up 24 percent in PKR and 22 percent in US$. This strong QoQ jump in earnings is mainly due to the absence of a higher tax recorded in 2Q2023 amid the implementation of a 10 percent super tax which was announced in the Federal Budget FY24.
The effective tax rate for 3Q2023 clocked in at 48 percent versus 52 percent in 2Q2023.
In 9M2023, the sector’s earnings were up 102 percent YoY to Rs. 421 billion (+44 percent YoY at $1.5 billion) led by higher NII which was up 69 percent YoY. Furthermore, a lower effective tax rate of 48 percent in 9M2023 versus 55 percent in 9M2022 also led to higher profit growth.
Bank Wise Performance
Bank wise, Meezan Bank (MEBL), MCB Bank (MCB), Habib Bank (HBL), United Bank (UBL), and Standard Chartered (SCBPL) posted the highest profits of Rs. 25.5 billion, Rs. 19.7 billion, Rs. 16.6 billion Rs. 15.0 billion and Rs. 12.7 billion, respectively during 3Q2023. On the other hand, Summit Bank (SMBL) recorded a loss of Rs. 2.1 billion in 3Q2023.
In terms of NII growth, Bank of Khyber (BOK), Soneri Bank (SNBL), JS Bank (JSBL), Standard Chartered (SCBPL), and BankIslami (BIPL) recorded the highest growth of 154 percent YoY, 134 percent YoY, 131 percent YoY, 106 percent YoY, and 104 percent YoY, respectively, in 3Q2023.
In 3Q2023, surprise dividends were seen from a few banks supporting the share prices of listed banks. Moving ahead, the report expects a strong dividend payout to continue amid the sector’s robust profitability.
Topline Banking Universe is trading at compelling valuations, with 2023E PE and PBV of 2.7x and 0.7x having an ROE of 28 percent.
The report has an ‘Overweight’ stance on banks with MEBL and UBL as its top picks.
