The profitability of listed banks in Pakistan saw a notable increase of 5% year-on-year (YoY) in 2024, reaching Rs597 billion. This growth was primarily driven by a 9% rise in Net Interest Income (NII), which amounted to Rs1.9 trillion, and a 50% surge in Non-Interest Income, which stood at Rs560 billion. These positive figures reflect the resilience of the banking sector amid a fluctuating economic landscape, driven by various key factors, including increased revenue streams and positive re-pricing impacts.
Despite the overall growth in profitability, banks faced an uptick in their effective tax rate during the fourth quarter (4Q) of 2024. The effective tax rate for this quarter was 56%, an increase from 53% in the previous quarter (3Q 2024). This rise in the effective tax rate is attributed to the overall tax hike for banks, which increased from 49% (inclusive of super tax) to 54% (inclusive of super tax) by the end of the quarter. This adjustment contributed to a slight dent in the profitability of banks during the final quarter of the year.
According to Topline Securities, the profitability of listed banks in Pakistan in 4Q 2024 was Rs153 billion, marking a modest decline of 1% YoY and 2% quarter-on-quarter (QoQ). While the quarterly profitability decreased, banks continued to experience growth in their core banking activities, particularly in NII. The overall profitability for the year 2024 indicates a positive trend for the sector, despite challenges such as the rise in taxation and an evolving macroeconomic environment.
In contrast to the slight decline in 4Q 2024, Pakistan’s listed banks reported a significant 95% YoY increase in profitability during 3Q 2023, which reached a record Rs163 billion. This performance highlights the sector’s ability to bounce back from previous downturns, aided by growth in core banking operations and a favorable operating environment.
Topline Securities’ analysis took into account the financial results of all listed banks, excluding Bank of Khyber (BOK), Samba Bank (SBL), and Silk Bank (SILK), which had not yet released their results. The report revealed that despite a decline in interest rates, the sector’s NII still managed to grow by 5% YoY and 4% QoQ in 3Q 2024, totaling Rs523 billion. This growth was largely attributed to volumetric growth and favorable re-pricing effects.
In 4Q 2024, interest income declined by 4% YoY and 13% QoQ to Rs1.6 trillion, while interest expenses also saw a drop, decreasing by 8% YoY and 20% QoQ to Rs1.1 trillion. However, non-interest expenses surged by 30% YoY and 42% QoQ to Rs329 billion, largely driven by a one-time pension expense recorded by National Bank of Pakistan (NBP). As a result, the sector’s Cost-to-Income ratio rose to 47% in 4Q 2024, compared to 40% in 4Q 2023 and 42% in 3Q 2024.
Additionally, the sector recorded a provisioning charge of Rs34 billion in 4Q 2024, an increase of 39% YoY and 29% QoQ. This rise in provisioning was largely due to the implementation of IFRS-9, as well as stress in key sectors like textiles and steel, according to channel checks.
Looking at individual bank performance, Meezan Bank (MEBL), United Bank (UBL), MCB Bank (MCB), Habib Bank (HBL), and Standard Chartered Bank (SCBPL) reported the highest profits, with Meezan Bank leading the pack at Rs101.5 billion, followed by UBL at Rs75.8 billion and MCB at Rs63.5 billion. In contrast, Bank Makramah (BML) reported a loss of Rs5.2 billion for the year.
In terms of NII growth, Meezan Bank, Bank Al Habib (BAHL), JS Bank (JSBL), United Bank (UBL), and Bankislami (BIPL) saw some of the highest year-on-year increases, with Meezan Bank recording an impressive 27% growth in NII.
Throughout 2024, most banks maintained stable dividend payouts, with NBP marking a historic return to dividend distribution after a seven-year hiatus, declaring Rs8 per share – the highest ever announced by the bank. This trend of maintaining or increasing dividends is expected to continue, reflecting the healthy profitability outlook for the sector moving forward.
In conclusion, while the Pakistani banking sector faced some challenges in the fourth quarter of 2024, including a higher tax rate and rising non-interest expenses, the overall performance for the year showed strong profitability growth. With NII and non-interest income driving much of the growth, the sector remains well-positioned to continue its positive trajectory in the coming years.