Pakistani Banks Set to Report Solid Third Quarter Earnings, Supported by Non-Core Income Growth

Karachi: The banking sector in Pakistan is expected to announce an increase in third-quarter profits for 2024, with estimates projecting a 3% year-on-year rise to PKR 94.4 billion. This increase is largely attributed to strong non-core income, which is expected to offset the effects of shrinking net interest margins (NIMs) and elevated provisioning costs.

According to AKD Securities Limited, the sector’s performance this quarter was bolstered by significant gains from non-markup activities, including securities sales and increased fee and dividend income. Despite a 300 basis points cut in the policy rate since mid-June and lower yields on investments, banks have managed to maintain profitability. The third quarter saw banks’ net interest income marginally increase by 1% sequentially to PKR 268 billion, as investments grew despite a general decline in market yields.

The report also forecasts strong cash payouts from banks due to robust capital levels, even as concerns loom over lower advance-to-deposit ratios (ADR) for some banks. Specifically, United Bank Limited (UBL) and Muslim Commercial Bank (MCB) need substantial loan growth to maintain a 40% ADR by December 2024 to avoid additional taxes. The analysis anticipates that banks will continue to leverage high-yielding short-term papers to navigate the challenges of lower interest rates and investment yields.

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