Net Interest Income (NII) declined by 8% on a YoY basis in 2QCY21 as a result of NIMs compression primarily on the back of sizable interest rate cuts last year. On a QoQ basis, NII increased by 7% which we expect must be emanating from improved investment income. Going forward, NII accretion is expected to be limited given the current interest rate levels while consistent balance sheet expansion will continue to support the NII.

Non funded income recovered lost ground having shot up by a significant 77% on a YoY basis however, on a sequential basis it declined by a mild 9%. The surge was backed by sizable turnaround in fee income which almost doubled YoY and now seems to be settling around the PKR 2.0Bn mark on a quarterly basis. Fee income is likely to have shot up due to higher trade income, card fee and greater transaction based banking. The YoY jump was further cemented by rising forex income which underwent a 135% increase to clock-in at ~PKR 800Mn. Capital gains declined to a mild PKR 117Mn from PKR 259Mn in the SQLY (PKR 141Mn in 1QCY21).

Provisioning charge of only PKR 148Mn was the major swing factor in the quarterly result against a charge of PKR 1.5Bn in the SQLY. Although published accounts will provide further clarity on the subject, we believe the muted charge must be due to general provisions reversals of PKR 5.5Bn booked by the bank last year.

Admin expenses of the bank remained elevated having increased by 11.7% YoY however, on a sequential basis the rise was 7.5%. Consequently, cost to income ratio rose to 44.6% in 2Q (40.0% in 1HCY20). Effective tax rate for the quarter clocked-in at 38.6%, largely in line with the 39% (35% corporate tax + 4% Super tax) applicable on banks.

Courtesy – BMA Capital Management Ltd.