Pakistan’s banking sector is positioned to extend its impressive performance into 2026, with major listed banks expected to deliver double-digit returns amid favorable monetary conditions, expanding deposits, and accelerated digital transformation. According to a report by AKD Securities, stable sector fundamentals, improving economic indicators, and rising investor confidence are set to keep valuations on an upward trajectory over the coming year.
The brokerage has initiated a Buy stance across leading banks, projecting strong price appreciation by June 2026. Among the top performers, Allied Bank (ABL) leads the pack with an expected return of over 80%, followed by Bank Alfalah (BAFL) with nearly 97%, and Bank Al Habib (BAHL) with over 58%. Other key banks including Meezan Bank (MEBL), MCB, HBL, UBL, and FABL are also forecast to post solid double-digit returns.
AKD Securities’ projections indicate that asset base growth will continue to outpace the anticipated compression in net interest margins (NIMs), driven by moderating inflation, easing policy rates, rising deposits, and the ongoing formalization of the economy. As policy rates move into single digits, credit demand is expected to rebound, supported by recovering GDP growth and a more favorable environment for private-sector lending.
A key structural development underpinning this outlook is the government’s plan to transition to a fully Islamic banking system by January 2028. Islamic banks already benefit from structural cost advantages under the MDR framework, asset-backed financing models, and stronger asset quality with non-performing loans at just 3.5% compared to the sector average of 7.4%. Deposits in Islamic banking have grown more than sixfold since March 2017, significantly outpacing conventional banking growth.
The government’s increasing issuance of Shariah-compliant debt instruments is also widening investment avenues and supporting balance sheet expansion. Advances are projected to grow at a compound annual rate of 15.5% between CY26 and CY30, signaling renewed credit momentum backed by robust deposit mobilization and improved fiscal discipline.
Beyond core banking operations, non-interest income is expected to grow significantly as digital transactions and financial documentation accelerate. The Rs3.5 billion Raast P2M subsidy program under the Prime Minister’s Cashless Economy initiative, effective from September 2025 to June 2026, is expected to drive merchant onboarding, QR code adoption, and transaction volumes. This is likely to boost fee-based revenues and strengthen funding stability across the sector.
The push toward digitalization is already reshaping banking behavior. The share of cash in total money supply has fallen to 26.5% by August 2025 and is projected to decline to 25.7% by CY27, reflecting improved financial inclusion and formalization. Meanwhile, rising remittances, forecast to reach $39.1 billion in FY26 and $39.8 billion in FY27, will continue to support deposit inflows and further enhance fee income.
Strong capital buffers remain another key strength for the sector. With an average capital adequacy ratio of 21.4%, well above regulatory requirements, banks have ample room to increase dividend payouts while maintaining balance sheet resilience. These fundamentals underpin AKD Securities’ Overweight stance on the sector.
However, the outlook is not without risks. Potential external shocks, fiscal slippages, or volatility in global commodity markets could delay monetary easing and pressure margins. A sharper-than-expected decline in yields might intensify NIM compression, while slower progress on the government’s cashless economy drive or delays in the Islamic banking transition could impact transaction-based revenues. Regulatory changes such as higher taxation on deposits or profit on debt may also weigh on earnings.
Despite these challenges, the combination of strong capital positions, diversified income streams, accelerating digital transformation, and the structural shift toward Islamic banking places Pakistan’s banking sector in a strong position to deliver sustainable profitability and attractive shareholder returns through 2026 and beyond.
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