KTrade has upgraded its outlook for Pakistan’s banking sector, reflecting a sharp improvement in earnings expectations, stronger deposit flows, and rising capital gains amid an ongoing downward interest rate cycle. This shift signals renewed investor confidence in the sector’s fundamentals and its ability to sustain profitability despite a changing macroeconomic environment.
The brokerage revised its earnings forecast for coverage banks in the range of -8% to +37%, projecting an overall 20% sector-wide earnings growth by the end of CY25. This is a notable improvement from its earlier projection of an 11% decline, underlining the positive impact of funding mix improvements and investment strategies adopted by major banks.
Target prices for banks under coverage have been lifted by 25% to 72%, with Habib Bank Limited named the top investment pick. National Bank of Pakistan and Bank Alfalah Limited follow closely, supported by strong fundamentals and favorable balance sheet positioning.
A key driver behind the improved outlook is the surge in non-remunerative deposits, which grew from 36% in December 2024 to 43% in June 2025. This is the fastest sequential growth since 2022, enabling banks to offset the impact of lower yields through cheaper funding costs. United Bank Limited and Meezan Bank have emerged as leaders in deposit mobilization, maintaining current account ratios close to 50%.
On the investment front, several banks have strategically expanded their investment books by leveraging borrowings from State Bank of Pakistan. By capturing spreads and building revaluation surpluses, they have effectively strengthened their balance sheets. These buffers rose 81% sequentially in June 2025 compared to a 21% decline in March 2025. With an additional policy rate cut of 100–150 basis points expected in the first half of CY26, banks are likely to see further valuation gains on their investment portfolios.
Earnings performance has also been notably strong. In the second quarter of CY25, profits for coverage banks rose 36.4% year-on-year, fueled by a 22% surge in Net Interest Income (NII) and a doubling of capital gains. This earnings momentum has allowed banks to withstand the impact of a sharp 700 basis point increase in effective taxation. Cost-to-income ratios improved by 150 basis points, highlighting efficiency gains across the sector.
KTrade’s report also noted that the Big-6 banks have outperformed the broader market by 55% year-to-date. Despite this strong performance, sector valuations remain below historical price-to-book value averages, leaving room for further upside as monetary easing continues.
Looking forward, KTrade expects banking sector earnings to grow at a 14% compound annual growth rate (CAGR) from 2026 to 2029. The brokerage anticipates that continued deposit growth, attractive dividend yields, and sustained capital gains will keep the sector ahead of broader market performance.
The latest analysis underscores the banking sector’s resilience and adaptability in a changing interest rate environment. With strategic balance sheet management and favorable macroeconomic trends, banks are positioned to sustain profitability and deliver shareholder value in the years ahead.
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