Lahore - Pakistan Banking Sector profit declined by 2 percent, excluding HBL’s one off loss of Rs14 billion booked during 3Q2017 (due to $224 million fine imposed on its New York branch).

Net Interest Income (NII) of the sector was up 5 percent YoY to Rs113 billion due to 14 percent growth in sector’s deposits. Margins of the sector have come down due to maturity of high yielding Pakistan Investment Bonds (PIBs).

The sector continued to see provision reversals clocking in at Rs2.1bn in 3Q2017 vs. total reversals of Rs1.7 billion in 3Q2016. This is on the back of higher loan recoveries and reversals in provisions against certain fixed income investments.

Non-interest income of the sector was up 6 percent YoY to Rs45 billion driven by higher fee, commission & brokerage income. Capital gains which are also part of Non-interest income was down 37 percent YoY to Rs7.9bn due to lower capital gains on account of PIBs and equities. We believe capital gains number could come down further going ahead as interest rates are expected to increase from 2018 and surplus on revaluation of fixed investments may subside. Furthermore, losses from equity market can further reduce this number. 

Non-interest expense of the sector was up 13 percent to Rs93bn which kept profitability under pressure. Bank wise data indicates that MCB and HBL contributed the most to the Non-interest expense.

Within top 7 banks, National Bank (NBP) posted earnings growth of 75 percent (provision reversal of Rs1.8bn & strong growth in fee, commission & brokerage income), whereas Bank Al-Habib (BAHL) and Bank Alfalah (BAFL) registered growth of 11 percent and 20 percent, respectively in 3Q2017.

Within smaller banks, Soneri Bank (SNBL) and Meezan Bank (MEBL) reported profitability growth of 15 percent and 9 percent respectively.