LAHORE - The high yields on government bonds and sizeable capital gains on stock & bond portfolios have lifted profit before tax of the listed banks by an impressive 48% in 1HCY15. In addition, lagged impact of loan portfolio re-pricing compared to deposit re-pricing also provided support to the profits.

However, higher taxation owing to super tax and flat taxations limited the bottom-line growth to 24% in 1HCY15.

On a sequential basis, PBT of the sector improved by 21% QoQ in 2Q mainly due to 25% higher non-markup income on the back of capital gains realized by various banks. However, higher taxation due to incidence of super tax, provision for which was made in 2Q, dragged the net earnings of the sector by 14%

Going forward, it is expected the profitability of the sector to remain flat in next the few quarters, while the absence of heavy capital gains may drag profits. However, the sector might witness squeezing margins after 2HCY16, when most of the high-yielding PIBs are maturing.

Nonetheless, experts expect the credit demand to pick-up from CY16 due to low interest rate environment, where credit has become cheaper for businesses and individuals. Further, initiation of Pak-China economic corridor would also increase credit demand in the country. Banks are also expected to gear up their efforts to increase non-markup income, which would reduce their sensitivity to interest rates.