Karachi, March 3, 2025 – The banking sector in Pakistan has reported an impressive 5% year-on-year (YoY) growth in after-tax earnings, reaching Rs 597 billion for the year ending December 31, 2024. This growth highlights the resilience of banks amidst fluctuating economic conditions, a testament to their ability to adapt to market challenges.
According to a report by Topline Securities Limited, Pakistan’s listed banks reported Rs 153 billion in profitability for the fourth quarter of 2024 (4Q2024). While this marks a slight 1% YoY decline and a 2% quarter-on-quarter (QoQ) dip, the sector’s overall performance throughout the year remained strong. Despite a decrease in interest rates, the banking industry saw a 5% increase in Net Interest Income (NII), which reached Rs 523 billion for the third quarter of 2024 (3Q2024), thanks to volumetric growth and favorable repricing effects.
A breakdown of the sector’s financial performance shows total interest income declining by 4% YoY and 13% QoQ, settling at Rs 1.6 trillion. Interest expenses also fell by 8% YoY and 20% QoQ, coming in at Rs 1.1 trillion. However, the sector faced significant challenges with non-interest expenses, which surged by 30% YoY and 42% QoQ, amounting to Rs 329 billion in the fourth quarter. This increase was primarily driven by a one-time pension expense of Rs 57 billion incurred by National Bank of Pakistan (NBP) for the full year.
The cost-to-income ratio for the banking sector rose to 47% in 4Q2024, up from 40% in 4Q2023 and 42% in 3Q2024. Additionally, provisioning charges jumped by 39% YoY and 29% QoQ, reaching Rs 34 billion. This surge was attributed to the implementation of IFRS-9 and sectoral stress, particularly within the textile and steel industries.
Another key development was the rise in the effective tax rate, which increased to 56% in 4Q2024, up from 53% in 3Q2024. This hike was due to the overall increase in the tax rate for banks, which went from 49% (including the super tax) to 54%. Despite these challenges, banks continued to demonstrate robust profitability, with several institutions reporting solid growth.
For 2024, the primary drivers of bank profitability were a 9% growth in NII, reaching Rs 1.9 trillion, and a 50% increase in Non-Interest Income, which totaled Rs 560 billion. Meezan Bank led the pack with after-tax earnings of Rs 101.5 billion, followed by United Bank with Rs 75.8 billion, MCB Bank at Rs 63.5 billion, Habib Bank at Rs 57.8 billion, and Standard Chartered Bank at Rs 46.1 billion. However, Bank Makramah (BML) was the only institution to report a loss of Rs 5.2 billion.
In terms of individual growth, Meezan Bank saw the highest YoY NII growth, with an impressive 27%, followed by Bank Al Habib (26%), JS Bank (22%), United Bank (16%), and BankIslami (15%). Most banks maintained their dividend payouts in 2024, with NBP resuming dividend payments after seven years. The bank declared Rs 8 per share, its highest-ever payout.
Looking ahead, experts forecast continued healthy profitability in the banking sector. With the Topline Banking Universe trading at a 2025E Price-to-Earnings (PE) ratio of 5.7x and a Price-to-Book Value (PBV) of 1.0x, analysts remain optimistic about the sector’s future performance. The Return on Equity (ROE) for the sector stands at 18%, reinforcing the appeal of banking stocks as a long-term investment. Among the top investment picks are Meezan Bank (MEBL) and Habib Bank (HBL), which analysts expect to continue performing well.
In conclusion, the banking sector’s performance in 2024 underscores its stability and growth despite economic challenges. With strong earnings, strategic growth in non-interest income, and increasing dividend payouts, the outlook for Pakistan’s banking sector remains promising.