In the second quarter of 2024, Pakistan’s listed banks reported a 4% year-on-year increase in profitability, reaching Rs. 137 billion. This growth was primarily driven by a 7% rise in Net Interest Income (NII) and a significant 49% surge in Non-Interest Income, according to a report by Topline Securities.
Excluding the National Bank of Pakistan (NBP), which faced a one-time loss of Rs. 49 billion due to a Supreme Court verdict on a pension case, the sector’s profitability increased by 26% year-on-year.
Despite a decline in interest rates, the sector’s NII benefited from volumetric growth and favorable repricing, with interest income rising by 35% year-on-year. Non-interest income gains were largely attributed to securities and foreign exchange income, although non-interest expenses also rose by 20% due to higher administrative costs.
The cost-to-income ratio increased slightly to 45%, while the effective tax rate decreased to 49%. Interestingly, the sector recorded a provisioning reversal of Rs1 billion, highlighting strong asset quality.
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.
In terms of individual bank performance, Meezan Bank (MEBL) led with the highest profit of Rs. 26.7 billion, followed by MCB Bank (Rs. 16.8 billion) and United Bank (Rs. 15.3 billion). Conversely, NBP and Bank Makramah (BML) reported losses.
In the second quarter of 2024, most banks maintained their dividend payouts, and this trend is expected to continue due to the sector’s strong profitability. The National Bank of Pakistan (NBP) is anticipated to resume dividend payouts in the fourth quarter of 2024 following clarification on a pension case.
The Topline Banking Universe is trading at attractive valuations, with a projected 2024 price-to-earnings (PE) ratio of 3.5x and a price-to-book value (PBV) of 0.9x, alongside a return on equity (ROE) of 27%.
Looking ahead, the banking sector is expected to maintain its dividend payouts, with a market weight stance recommended. Top picks include Meezan Bank and Habib Bank, as the sector continues to trade at compelling valuations with a robust return on equity.
