Listed Banks Post Rs. 137 Billion Profit in Q2 2024

Pakistan’s listed banks’ profitability clocked in at Rs. 137 billion, up 4 percent YoY in 2Q2024. Excluding National Bank (NBP), profitability increased by 26 percent YoY in 2Q2024. This growth was primarily driven by an increase in Net Interest Income (NII) and Non-Interest Income, Topline Securities said in a report. Similarly, on a QoQ basis, listed banks’ profitability was down 10 percent, mainly due to one-time losses booked by NBP. Excluding NBP, profitability was up 2 percent QoQ. To highlight, NBP booked a one-time loss of Rs. 49 billion in 2Q2024 related to the settlement of a pension case, after the Supreme Court verdict. Despite the decline in interest rates, the sector’s NII clocked in at Rs. 488 billion, up 7 percent YoY and 4 percent QoQ in 2Q2024, led by volumetric growth and favorable repricing impact. Interest income was up by 35 percent YoY and 6 percent QoQ to Rs. 1.8 trillion, whereas interest expense was up by 47 percent YoY and 6 percent QoQ to Rs. 1.4 trillion. Non-interest income of the sector was up by 49 percent YoY and 2 percent QoQ to Rs. 127 billion in 2Q2024 primarily due to gain on securities and higher FX income. On the other hand, non-interest expenses were up 20 percent YoY and 7 percent QoQ to Rs. 260 billion in 2Q2024 due to higher admin expense which is in line with the inflation trend. The Cost to Income ratio of the sector clocked in at 45 percent in 2Q2024 vs. 43 percent in 2Q2023 and 44 percent in 1Q2024. Interestingly, despite high interest rates, the sector recorded a provisioning reversal of Rs. 1 billion in 2Q2024, compared to a provision charge of Rs. 12.9 billion in 2Q2023 and Rs. 8.5 billion in 1Q2024, mainly due to strong asset quality. The effective tax rate for 2Q2024 clocked in at 49 percent vs 52 percent in 2Q2023 and 50 percent in 1Q2024. In 1H2024, the profitability of banks increased by 129 percent YoY to Rs. 289 billion, mainly driven by a 13 percent growth in NII to Rs. 881 billion and a 56 percent jump in Non-Interest Income. The report has factored in all listed banks that have announced their financial results except for Silk Bank (SILK), which has not yet announced its results. Bank wise, Meezan Bank (MEBL), MCB Bank (MCB), United Bank (UBL), Habib Bank (HBL), and Allied Bank (ABL) posted the highest profits of Rs. 26.7 billion, Rs. 16.8 billion, Rs. 15.3 billion Rs. 14.0 billion and Rs. 12.5 billion, respectively during 2Q2024. On the other hand, National Bank (NBP) and Bank Makramah (BML) recorded losses of Rs. 9.1 billion and Rs. 0.6 billion respectively in 2Q2024. In terms of NII growth, Bank of Khyber (BOK), Meezan Bank (MEBL), Bank Al Habib (BAHL), Bankislami (BIPL), and JS Bank (JSBL) recorded the highest YoY growth of 50 percent, 42 percent, 42 percent, 22 percent and 12 percent, respectively in 2Q2024. However Bank of Punjab (BOP), United Bank (UBL), Habib Metropolitan (HMB), Askari Bank (AKBL), Allied Bank (ABL), and Bank Alfalah (BAFL) recorded YoY fall in NII of 23 percent, 22 percent, 16 percent, 7 percent, 3 percent, and 2 percent respectively in 2Q2024. In 2Q2024, most banks maintained their dividend payouts. Moving forward, the report expects this trend to continue amid the sector’s healthy profitability. In the case of NBP, it anticipates the bank will resume dividend payouts in 4Q2024 after clarification on the pension case. Topline Banking Universe is trading at compelling valuations, with 2024E PE and PBV of 3.5x and 0.9x, respectively having an ROE of 27 percent. The report set a ‘market weight’ stance on the Banking Sector with MEBL, and HBL as its top picks.