Pakistan Banks Anticipate Robust Profits in 3QCY23, Sustaining Dividends, Indicates JS Securities Research

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Karachi, 13 Oct 2023: Anticipations for robust profits in the third quarter of the calendar year 2023 (3QCY23) have illuminated the banking sector in Pakistan, with the probability of sustaining dividends, as per the preview of results reported by JS Securities Limited. Projections reflect a notable 6% quarter-on-quarter (QoQ) and 54% year-on-year (YoY) leap in Net Interest Income (NII), attributing to sequential Net Interest Margins (NIMs) expansion. Additionally, with the effective tax rate purportedly being trimmed and a steady cost-to-income ratio, the higher income is expected to translate into record-high quarterly profits for the sector, exhibiting a QoQ growth of 11%.

The review outlines that although 3QCY23 witnessed no alterations in interest rates, the last Policy Rate hike, declared at the end of June 2023, instantly elevated deposit costs from the onset of 3QCY23. Concurrently, the partial impacts of the interest rate hikes in March 2023 and April 2023 might be visible in asset re-pricing during 3QCY23. With an almost steady asset base, a continuation of the sequential NIMs expansion is anticipated, coupling with a notable surge in NII. On the non-interest income side, the likely absence of higher loss on the sale of securities, stable Foreign Exchange (FX) income, and ascendant Fee Income are projected to exhibit single-digit sequential growth.

In the light of continuing inflationary pressures and a sharp elevation in operating expenses, the Cost to Income ratios are envisaged to remain steady at 41%, akin to 2QCY23. The standard corporate tax is presumed to be 39%, with a Super Tax for the quarter at 10%, keeping the effective tax rate at 49%, which is slightly reduced compared to the 54% reported in 2QCY23. Consequently, the bottom-line is projected to report record levels, achieving a QoQ growth of 11% and a YoY growth of 62%.

Furthermore, dividend announcements are expected to remain stable, despite witnessing an ascending trend in the secondary market yield movements until mid-quarter, which saw a downtrend towards the quarter’s end. A similar trajectory was noted with the Pakistan Rupee (PKR) against the US Dollar, where PKR depreciation was eventually limited to a 1% on a QoQ basis, due to the rising PKR against the US Dollar towards the quarter’s conclusion. Both factors are anticipated to restrict any potential surge in unrealized losses under the Surplus of Revaluation of Available for Sale fixed-rate securities and any potential dent from exposure to overseas operations.

Comfortable buffers over respective minimum required adequacy levels are anticipated to be reported by banks, enabling them to persist with their dividend strategies and maintain the annual Dividend Yield (D/Y) intact. JS Securities does not dismiss the possibility of some banks elevating the quarterly dividend amidst robust earnings expectations and a higher buffer on Capital Adequacy Ratio (CAR).

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