Pakistan listed banks earnings jump 95% YoY (50% YoY in US$) in 3Q2023

Pakistan listed banks profitability increased to record Rs163bn up 95% YoY in 3Q2023. This was primarily driven by significant jump in Net Interest Income (NII) amid high interest rates, and balance sheet growth. In US$ terms listed banks profit was also up 50% YoY to US$560mn in 3Q2023. NII of the sector clocked in at Rs481bn in 3Q2023 vs. Rs283bn in 3Q2022 up 70% YoY as average policy rates during 3Q2023 remained to 22% vs. 15% in 3Q2022. Interest income was up by 79% YoY to Rs1.6trn, whereas interest expense was up by 84% YoY to Rs1.1trn.

Non-interest income of the sector was down by 5% YoY to Rs79bn in 3Q2023 mainly due to loss on securities and decline in FX income. On other hand, non-markup expense was up 30% YoY to Rs229bn in 3Q2023 due to higher admin expense which is in line with inflation.

Cost to Income ratio of the sector improved to 41% in 3Q2023 vs. 48% in 3Q2022.

Interestingly despite high interest rates, provisioning charge of sector declined by 9% YoY to Rs14.7bn in 3Q2023 mainly due to strong asset quality.

On QoQ basis, listed Banks profitability was up 24% in PKR and 22% in US$. This strong QoQ jump in earnings is mainly due to absence of higher tax recorded in 2Q2023 amid implementation of 10% super tax which was announced in Federal Budget FY24. Effective tax rate for 3Q2023 clocked in at 48% vs 52% in 2Q2023.

In 9M2023, the sector’s earnings were up 102% YoY to Rs421bn (+44% YoY at US$1.5bn) led by higher NII which was up 69% YoY. Furthermore, lower effective tax rate of 48% in 9M2023 vs 55% in 9M2022 also led to higher profit growth.

For our analysis, we have taken all banks that have announced their financial results except for Silk Bank (SILK), which has not yet announced its results.

Bank wise, Meezan Bank (MEBL), MCB Bank (MCB), Habib Bank (HBL), United Bank (UBL), and Standard Chartered (SCBPL) posted highest profits of Rs25.5bn, Rs19.7bn, Rs16.6bn Rs15.0bn and Rs12.7bn, respectively during 3Q2023. On the other hand, Summit Bank (SMBL) recorded loss of Rs2.1bn in 3Q2023.

In terms of NII growth, Bank of Khyber (BOK), Soneri Bank (SNBL), JS Bank (JSBL), Standard Chartered (SCBPL), and BankIslami (BIPL) recorded highest growth of 154% YoY, 134% YoY, 131% YoY, 106% YoY and 104% YoY respectively in 3Q2023.

In 3Q2023, we saw surprise dividends from a few banks supporting the share prices of listed banks. Moving ahead, we expect a strong dividend payout to continue amid the sector’s robust profitability.

Topline Banking Universe is trading at a compelling valuations, with 2023E PE and PBV of 2.7x and 0.7x having a ROE of 28%.

We continue to have an ‘Overweight’ stance on banks with MEBL and UBL as our top picks.

Courtesy – Topline Pakistan Research 

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