Banks Q2 2025 Bonanza: Profit Soars but Economy Suffers

The banking sector is the only one in Pakistan that has never experienced a recession. The main reason is that the government remains a key borrower from these banks, whose net interest income rose to Rs91 billion in the second quarter of 2025. UBL alone generated Rs61 billion in net interest income during the period under review.

Pakistan’s listed banking sector has reported a striking Rs168 billion in profits for the second quarter of 2025—an impressive 22 per cent increase year-on-year. At first glance, the numbers seem encouraging; however, they mask a deeper structural imbalance that continues to privilege banks over businesses and households.

Net interest income (NII), which rose 19 per cent to Rs621 billion, overshadowed the broader economic challenges. Yet this growth was overwhelmingly driven by just three institutions: United Bank Limited (UBL), the Bank of Punjab (BOP), and National Bank of Pakistan (NBP). UBL alone recorded a staggering 213 per cent spike in NII to Rs91 billion, while BOP and NBP posted 158 per cent and 42 per cent increases respectively. As noted in one editorial, “excluding these three, sector‑wide NII declined 2 per cent YoY”—a stark reminder of how concentrated gains have become, according to Dawn.

Even more troubling is the nature of that income. Far from expanding private sector lending, banks have deepened their reliance on government securities, benefiting from high-yield returns backed by sovereign guarantees while neglecting SMEs and industries. Dawn’s analysis earlier this year warned about the steep decline in private sector credit: banks’ lending to private industry had plummeted from Rs1.98 trillion at the end of 2024 to just Rs563 billion by early March—a sharp fall that now jeopardises job creation and economic recovery.

Non-interest income grew 12 per cent, largely fueled by rising fees, commissions, and FX margins. For ordinary consumers already struggling under inflation, this rise equates to an invisible levy imposed through everyday banking transactions. Meanwhile, operating expenses climbed 17 per cent, pushing the cost-to-income ratio to nearly 46 per cent—prompting skepticism over whether branch expansion is a necessity or simply a cost passed on to the public. Banks’ Profit Hits Rs158bn in 3Q2024

Provisions saw a reversal, with banks writing back Rs8 billion, reflecting reduced perceived credit risk—yet these gains are derived not from lending to enterprises but from safe government debt. Compounding the irony is the sector’s effective tax rate, which now hovers at 56 per cent—the highest in recent memory—following the revamp of ADR-linked taxes. But even with this heavy taxation, profits remain robust.

Major banks continue to command lucrative dividends. UBL led the earnings race with Rs28.6 billion, followed by Meezan Bank at Rs24.7 billion and NBP at Rs20.9 billion—while smaller banks continue to flounder, raising questions about broader financial inclusion and equity.

On valuation metrics, the sector appears compelling, boasting a forward P/E of 7.4x, PBV of 1.8x, and a return on equity of about 23 per cent. For investors, indeed, this remains a goldmine. Yet for the broader economy, the banking sector’s trajectory reads more like a well-stocked banquet for elites, offered at the expense of the country’s growth engines.

Unless there is a deliberate shift—redirecting funds toward small businesses, exporters, and job-creating ventures—these profits will continue to feel less like signs of strength and more like a reflection of structural failure, where the banks, the state, and their shareholders prosper while the rest of the economy lags behind. Read More Stories on Newztoday