Staff Report:
Pakistan’s listed banks reported profitability of Rs158 billion in 3Q2024, a 1% decline year-on-year but a 16% increase quarter-on-quarter. Despite lower interest rates, net interest income (NII) grew to Rs507 billion, up 6% YoY and 13% QoQ, driven by volumetric growth and favorable repricing effects. Interest income rose 17% YoY to Rs1.9 trillion, while interest expenses increased 21% YoY to Rs1.4 trillion.
Non-interest income surged 55% YoY to Rs129 billion, primarily due to gains on securities and increased foreign exchange and fee income. However, non-interest expenses also rose, up 21% YoY to Rs273 billion, reflecting higher administrative costs aligned with inflation.SBP to Celebrate Women Entrepreneurship Day on November 19
The sector’s cost-to-income ratio stood at 43% in 3Q2024, compared to 41% in 3Q2023 and 45% in 2Q2024. Additionally, provisioning charges increased to Rs27 billion, up from Rs21 billion in 3Q2023, influenced by IFRS-9 implementation and stress in the textile and steel sectors.
The effective tax rate for 3Q2024 was 53%, up from 49% in the previous year, partly due to additional charges from low gross-to-ADR ratios and higher taxes from subsidiary sales. For the first nine months of 2024, profitability rose 7% YoY to Rs447 billion, fueled by an 11% increase in NII to Rs1.4 trillion and a 56% rise in non-interest income.
Among individual banks, Meezan Bank, United Bank, MCB Bank, Habib Bank, and Bank Alfalah reported the highest profits, while Bank Makramah faced a loss of Rs1.7 billion. In NII growth, JS Bank, United Bank, Bank of Khyber, Bank of Punjab, and Bank Al Habib led the way, while National Bank, Samba Bank, and others experienced declines.
Most banks maintained their dividend payouts, with expectations for this trend to continue, particularly for National Bank, which may resume payouts in 4Q2024 following clarification on a pension case. The banking sector is currently trading at attractive valuations, with a 2024 estimated PE of 4.0x and a price-to-book value of 1.0x, alongside a return on equity of 27%. We maintain a ‘market weight’ stance on the sector, with Meezan Bank and Habib Bank as our top picks.
