A clear shift in banks strategy was seen in 2014 when banks made heavy investments in long term PIBs. Investments in PIBs by banks amounted to Rs1,354 billion (27 per cent of deposits) during 9M2014, up 210 per cent from Dec 31, 2013.

As a result, the banks are expected to post impressive earnings growth on the back of increased exposure in high yielding Pakistan Investment Bonds (PIBs), higher non markup income and lower provisioning expense. According to experts, total investments in PIBs to have reached Rs1,555b by Dec end 2014. PIBs on average offer higher rate of return as compared to T-Bills.

Statistics show that in 2014, average yield on PIBs (3-year) stood at 11.7 per cent as against 9.9 per cent on T-Bills as Govt. shifted to long-term financing as per IMF instruction. Higher advances growth (up by 9 per cent YoY) and floating profit rate on saving deposits is likely to further aid NII growth.  CASA (Current Account Savings Account) of the sector is anticipated to improve to 70 per cent of total deposits in 2014 as compared to 68 per cent in 2013. NBP and UBL are expected to witness significant improvement in deposit mix as CASA ratio is anticipated to increase to 58 per cent and 69 per cent of total deposits in 2014 as against 50 per cent and 67 per cent during the last year. Current account to total deposit ratio is expected to improve to 32 per cent in 2014 versus 31 per cent in 2013. Higher income from PIBs and improving deposit mix is likely to lift Net interest margin (NIM) of banks to 4.4 per cent in 2014 as against 4.1 per cent in 2013.

Along with higher core income, non markup income of banks is expected to increase by 14 per cent to Rs98.3bn led by higher fee and commission income. Income from dealing in Foreign Currency (FC) and dividend income is also anticipated to improve non markup income of banks as we expected them to increase by 23 per cent and 13 per cent, respectively.  On the other hand, total non markup expense is expected to rise by 13 per cent in 2014. Experts said that provisioning expense of our banking universe is anticipated to report a decline of 59 per cent mainly due to heavy provisioning by NBP in 2013 and recovery of loans from Ittefaq Foundry by NBP in 2014.