CFA Society Pakistan launches analyst guide for banking sector

July 17, 2026 (MLN): CFA Society Pakistan has launched the first edition of the "Analyst Guide: Banking Sector", a comprehensive publication aimed at strengthening practical knowledge of Pakistan's banking industry for investment professionals, researchers, students, regulators, and financial journalists.

Authored by Asif Ali Qureshi, CFA, the guide provides a structured framework for analyzing banking companies, financial statements, macroeconomic trends, valuation methodologies, and regulatory requirements to support informed investment decisions.

According to the publication, Pakistan's banking sector remains the country's largest in terms of assets, profitability, and stock market representation while serving as the backbone of the monetary policy transmission mechanism and credit creation process.

The guide notes that the health of the banking industry is therefore critical not only for investors but also for the broader economy.

The 43-page guide outlines a structured approach to equity analysis, emphasizing that investment recommendations should be built upon the interaction of macroeconomic conditions, sector dynamics, company-specific factors, financial modelling, and valuation.

It also details Pakistan's banking regulatory architecture, highlighting the roles of the State Bank of Pakistan (SBP), Securities and Exchange Commission of Pakistan (SECP), Ministry of Finance (MoF), Deposit Protection Corporation (DPC), Financial Monitoring Unit (FMU), and Pakistan Stock Exchange (PSX), alongside the principal banking and corporate laws governing the sector.

The guide explains that banks in Pakistan prepare financial statements under International Financial Reporting Standards (IFRS), while complying with the SBP's prudential and disclosure requirements, with central bank directives taking precedence where conflicts arise.

It further outlines the five key financial statements that banking institutions are required to publish, including the balance sheet, profit and loss account, comprehensive income statement, statement of changes in equity, and cash flow statement.

Discussing banking fundamentals, the publication identifies Net Interest Income (NII) as the primary earnings driver, explaining that profitability depends largely on the size of earning assets and the spread between interest earned on loans and investments and interest paid on deposits and borrowings.

The guide further highlights the strong relationship between macroeconomic variables and banking performance, noting that bank deposits accounted for nearly three-quarters of Pakistan's Rs42.3 trillion broad money (M2) stock at the end of 2025.

It adds that long-term growth in bank deposits has closely tracked M2 expansion, making money supply growth and interest rates the two most important drivers of banking sector profitability.

The publication also examines banking balance sheets, noting that deposits remain the industry's primary funding source despite the sharp rise in repurchase (REPO) borrowings linked to open market operations (OMOs).

On the asset side, investments have grown significantly over the years, reaching nearly 75% of profit-earning assets in 2025, with government securities dominating investment portfolios.

The guide points out that deposit composition plays a key role in determining banks' funding costs. Banks with higher proportions of current accounts and Islamic deposits generally enjoy lower funding costs, while changes in deposit mix are largely driven by strategic decisions rather than sector-wide factors.

It also identifies interest rate risk as the most significant financial risk faced by banks, stressing that analysts should carefully assess the maturity profile and repricing characteristics of investment portfolios and liabilities when evaluating future earnings.

The report further observes that advances-to-deposits ratios have declined sharply over the past decade as banks increasingly allocated funds toward government securities amid slower private-sector credit demand and a larger public-sector financing requirement.

On profitability, the guide notes that non-interest income remains inherently volatile due to fluctuations in trading gains, foreign exchange income, derivatives, and dividend income, while operating efficiency and taxation continue to be major differentiating factors across banks.

It adds that Pakistan's banking sector remains among the country's most heavily taxed industries, with banks subject to a special taxation regime, workers' welfare contributions, corporate income tax, and super tax.

The publication concludes with an extensive financial ratio analysis of Pakistan's six major listed banks, covering key performance indicators related to yields and spreads, balance sheet growth, profitability, operational efficiency, asset quality, capital adequacy, and valuation to assist analysts in making informed investment decisions.

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