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Banking Sector: A sign of strength

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March 13, 2020 (MLN):  The CY19 closed stronger for the banking sector despite challenging macroeconomic environment. The growth trajectory of the top five banks; Allied Bank Limited, Habib Bank Limited, MCB Commercial Bank, National Bank of Pakistan and United Bank Limited expanded by 11% YoY on the back of decent growth in deposits.

Higher interest environment reflected on deposit composition as the weighted average policy rate in 2019 was 12.2% against 7.2% in 2018.

In addition to seasonal factors, the increase in the minimum savings rate and the income related to the amnesty scheme increased the flow of deposits.

The interest income of big five banks witnessed a growth of 56% YoY at Rs 925 billion in CY19 on a back of growth in the bank’s credit offtake coupled with higher spread on current deposits. However, interest expenses also surged by 87% YoY, thereby curtailing growth in the bank’s net interest income (NII) to 22% YoY during CY19.

Interestingly, the non-funded income of the big-5 banks showed a meagre increase of 1% YoY on an account of regulatory changes with tough economic conditions. The prime reason for this negligible growth was the major decline in gain on sale of securities by 81% YoY, resulting in a decline in the market value of some equity securities. However, forex income came as breather which increased by 9% YoY as banks capitalized on free-floating exchange rate.

Similarly, a parallel increase in non-interest expenses by 17% was observed by the top five banks in CY19 which clocked in at Rs 269 billion. Besides generating a greater share of their income, certain banks carried out cost rationalization measure to cope with the economic slowdown. To take a bird’s eye view of the big 5 efficiencies, we look at the cost to income ratio which declined to 59% from 60%, showing a marginal increase in productivity of banks. 

The net provision written by these banks amounted at Rs 27.4 billion. This 2% increase has been a combination of a reduction in the value of an investment and loan-related charges. The tax expenses for the sample jumped by 41% to reach Rs 67.5 billion.

The banking sector in CY19 experienced some major changes ever; increased pressure form government through regulatory measures i.e. Strict KYC which dampened the deposit growth rate of the sector.


Profit and Loss Account for the year ended on December 30, 2019 (Rupees in '000)




% Change

Mark-up/return/interest earned




Mark-up/return/interest expensed




Net mark-up/interest income








Fee, commission income




Dividend income




Foreign exchange income




(loss)/Income from derivatives




Gain/(loss) on sale of securities – net




Share of (Loss)/profits from associates




Other income




Total non-mark-up/interest income




Total Income








Operating expenses




Workers welfare fund




Other charges




Total non-mark-up/interest expenses




Profit before provisions




Provisions / (reversals) and write offs – net




Extra ordinary unusual item- charges in respect of pension liability




Profit before taxation








Profit after taxation




Earnings per share – Basic and Diluted (in Rupees)





Based on individual assessment, United Bank Limited (UBL) outperformed among its peers in both absolute terms as well as percentage-wise. The bank showed the growth of 33% in its net profits to stand at Rs 20.27 billion on the back of higher Net Interest Income (NII), lower provisioning expenses and low base of operating expenses.

Moreover, Provisions of the bank dropped by 41%, YoY to Rs 7.3 billion, but remained high on the back of Impairment charge against investments and Provision against Non-Performing Loans (NPLs) especially against the international advance portfolio.

MCB Commercial Bank (MCB) reported net earnings of Rs 23.94 billion (EPS: Rs 20.14), i.e. 17.3% higher than the same period of last year.

On the asset side, the investment portfolio size witnessed negligible change; however, the mix witnessed a much larger concentration in PIB Investments (39%) when compared to CY18 (17%), revealed JS Global Research.

Habib Bank Limited (HBL) declared its consolidated net profits of Rs 15.45 billion (EPS: 10.45), up by 24.6% YoY, driven by Net interest income. Growth in non-interest income also supported its bottom-line.

According to the research note of Topline, HBL’s advances grew by 8%, higher than industry growth. The bank’s strategy is focused on the real sector and as a result, it has renewed its focus on the agriculture sector and the SME sector.

Allied Bank Limited (ABL) posted earnings of Rs. 14.4 billion (EPS: Rs. 12.65), showing an increment of nearly 11% over the last year.

The research report by Spectrum Securities highlighted that ABLs deposit growth was slower than the industry. ABL recorded a 7%YoY growth rate vs industry’s 10% YoY. Moreover, as of now, the bank holds a larger position in T-bills than PIBs.

Lastly, National Bank of Pakistan (NBP) suffered a 17% decline in net profits to clock in at Rs 16.6 billion (EPS: Rs. 7.79) owing to higher operating expenses.

The bank booked heavy provisioning expenses which surged by 21% YoY to Rs 13.5 billion eroded the bottom line.

Having established that, the largest source of total gains in Big 5 is MCB followed by UBL next in line is NBP with 18% profit size.


The market capitalization of this sample sector represents around 66% of the whole sector. Within this, HBL captured the biggest chunk of 24% as of yesterday. Next in line is HBL at 13.52% followed by UBL at 11.69%.



Considering the financial results and macro estimates, CY20 is considered a transitionary year for banks as timings and quantum of the policy rate cut will change the dynamics. However, reduced non-performing loans may offset the impact of the expected reduction in policy rate as the economy has just started to move towards an upward trajectory. Moreover, credit growth is expected to improve as the borrowers will get funds at a lower rate.

On the other hand, in case of falling interest scenario, the net interest income of banks might be under pressure as bank’s investment in high yield PIBs has been low when compared to last year, highlighted in the research report of Topline.

On the brighter side, corporate and SME loans look strong for banks as the government is going to release development funds which will allow banks to generate business activities in the economy, the research of Spectrum research added.

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Posted on: 2020-03-13T11:39:00+05:00