LAHORE - The banking sector profits went down by 18 percent YoY to Rs39 billion in the first quarter of 2018 mainly on account of one-time pension cost and lower capital gains recorded during the quarter. Excluding pension & capital gains, profits were up 7 percent YoY to Rs64 billion.

Net interest income (NII) of the sector was up 9 percent YoY to Rs118 billion, driven by balance sheet growth, improving deposit profile and recoveries of markup income. This led to higher profits excluding outliers.

Total provisioning reversal during 1Q2018 stood at Rs976m vs Rs2b in 1Q2017 whereas provisioning expense against international NPLs stood at Rs138m in 1Q2018 vs reversal of Rs1.3b in 1Q2017. To recall, UBL booked an above average provision charge of Rs2b against NPLs that kept consolidated total provisioning reversal on lower side during 1Q2018.

Non-interest income of banks was down 7 percent as capital gains remained on lower side due to high base effect. Capital gains during 1Q2018 declined by 40 percent to Rs8.1b. The other key component of non-interest income, fee, commission & brokerage income continued to post growth on YoY basis.

Growth in non-markup expense stood at 7 percent YoY which is lower than historical average and lower than the growth seen in NII of the sector. This led to improvement in PBT of the sector (excluding pension cost & capital gains).

Banks including Allied Bank (ABL), Habib Bank (HBL), MCB Bank (MCB) and United Bank (UBL) booked cumulative pension cost of Rs10.9b during the quarter. To recall, Supreme Court had ordered these banks to increase minimum monthly pension to Rs8000/month to pensioners with an annual increase of 5 percent.

This led to a one off charge during 1Q2018 which impacted sector’s profitability.