Banks Record Highest-Ever Quarterly Earnings in 3QCY22: Rs. 85 Billion, Up 26% YoYDuring the third quarter of CY22, the banking sector achieved a significant milestone with their highest-ever quarterly earnings. The top 16 banks in Pakistan reported combined earnings of Rs. 85 billion, reflecting an impressive 26% year-over-year (YoY) increase.
Ismail Iqbal Securities, a leading financial advisory firm, attributes this remarkable performance to robust fees and foreign exchange (FX) income, which have been key revenue drivers. Additionally, rising interest rates have played a significant role in boosting Net Interest Income (NII) for the banks.
Despite provisions for loan portfolios experiencing an increase, they remain relatively low, and the banks have managed to navigate the challenges posed by COVID and interest rate shocks with minimal impact. The only negative aspect has been the change in the tax system, resulting in an effective tax rate of 52% compared to 41% during the same period last year.
The NII of banks saw a noteworthy 17% quarter-over-quarter (QoQ) growth due to the lag effect of asset repricing. In terms of individual banks, SCBL (+42% QoQ), HMB (+35% QoQ), AKBL (+34.9%), MEBL (+32.2%), and BIPL (+25%) outperformed BOP (-9.5%) and NBP (+0.7%).
However, Non-Markup income experienced a slight decline of 5% QoQ, mainly due to a marginal fall in fees and FX income. Despite expectations of normalization, FX income remained robust and only saw a slight decrease of 2.7% QoQ.
Provisions witnessed a substantial increase of 135% QoQ, reaching Rs. 15 billion. Notably, BAFL and UBL’s subjective provisions on GOP Eurobonds contributed significantly to the rise. Additionally, Opex (operating expenses) increased by 8.3% QoQ due to strong economic inflationary pressures.
The industry also witnessed a 15% YoY increase in deposits, while the Advance-to-Deposit Ratio (ADR) rose to 48.6% from 47.7% in June and 46.9% in the same month of the previous year. HBL experienced a decline of 10% in its deposits QoQ, resulting in an ADR above 50%. Conversely, UBL raised its deposits by 9.5% QoQ, leading to a drop in its ADR below 40% and an increase in ETR (Effective Tax Rate) to 59.5%.
Looking ahead, the report predicts further improvement in NII as asset repricing from the 125bps increase in July is yet to take effect. However, if GOP Eurobond prices do not rise in the current quarter, provisions on government bonds may increase for some banks, particularly as the economic slowdown’s effects become more apparent in the upcoming quarters. It is anticipated that deposit growth in the December 2022 quarter will be subdued as banks strive to meet their Advance-to-Deposit Ratio (ADR) requirements by the end of the year.
