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Pakistani banks cash in on soaring interest rates, achieve record profits in 2023

Pakistani banks cash in on soaring interest rates
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March 01, 2024 (MLN): Extending its journey of continuous success, the banking sector has wrapped the financial year 2023 with remarkable resilience, as majority of the banks witnessed record-high profits and dividend payouts.

The 14 banks that account for the banking sector of the KSE-100 index cumulatively generated a net profit of Rs544.43 billion, reflecting a massive 81.95% YoY growth compared to their total earnings last year.

The robust victory this year is driven by a massive 84.81% YoY spark observed in the sector's interest earnings on account of higher interest rates.

As the country was struggling with surging inflation throughout the year, the State Bank of Pakistan (SBP) came to play its role and raised the policy rate by 600bps to 22%.

Regardless of the contractionary circumstances on the economy from these rate hikes, the banks booked significant gains as they capitalized on it as an opportunity.

With interest rates standing at an all-time high, the public became more eager to save their money in banks due to which their deposits surged to a higher level.

The growth became more prominent when the central bank released the latest banking statistics which showed that deposits reached Rs27.84 trillion as of December 2023, around 24% YoY higher compared to the figure at the end of 2022.

Furthermore, the advances of the scheduled banks also maintained a modest growth of 3.69% YoY, as the economy shifted towards stability in the second half of the review year.

The central bank raised the policy rate to 22% in June 2023, after which it decided to maintain the respective policy rate for a consecutive series of 5 meetings.

Regardless, commercial banks remained consistent in driving higher interest incomes with increased inflows of deposits and expanded advances and loans.

However, the uninterrupted success was not only limited to growth in net interest earnings but the 14.63% YoY rise in non-markup income and 17.25% YoY drop in provision expense also buoyed the gains.

The overall non-markup income clocked in at Rs325.94bn, meanwhile, the provision expense was reported at Rs48.21bn during the review period.

The sole reason for increased non-interest income is the higher fee and commission income stemming from expanded banking operations in 2023.

Whereas, the primary factor for reduced provision in the review period was the economic recovery witnessed under the caretaker setup. Moreover, in 2022, banks experienced high provisions, and due to a high base effect, provisions have narrowed.

As commercial activity expanded during the year, the non-markup expenses for the sector also spiked by 31.97% YoY with banks allocating more towards workers' welfare and participation funds, in addition to higher operating costs.

The combined profit and loss statement for the sector shows that the government collected Rs564.73bn from the commercial banks in 2023, which is around 71.39% YoY greater than the tax revenue generated in 2022.

Unconsolidated profit & loss statement for the year ended December 31, 2023
  2023 2022 % change
Net Mark-Up / Interest Income 1,632,410,622 1,009,596,595 61.69%
Mark-Up / Return / Interest Earned 5,396,878,694 2,920,270,355 84.81%
Mark-Up / Return / Interest Expensed 3,764,468,072 1,910,673,760 97.02%
Non-Mark-Up / Interest Income 325,939,412 284,332,809 14.63%
Total Income 1,958,350,034 1,293,929,404 51.35%
Non-Mark-Up / Interest Expenses 801,068,681 606,993,700 31.97%
Profit Before Provisions And Taxation 1,157,281,353 686,935,704 68.47%
Provisions / (Reversals) And Write-Offs 48,207,012 58,258,725 -17.25%
Profit Before Taxation 1,109,074,341 628,676,979 76.41%
Taxation 564,731,106 329,501,670 71.39%
Profit After Taxation 544,343,235 299,175,309 81.95%

Amount in thousand

It is important to note that the banking sector composes the largest (24.88%) weightage to the KSE-100 index.

Hence, the astral earnings performance by commercial banks in all four quarters of 2023 emerges as one of the major factors driving the observed upward rally in the local bourse.

Driven by this massive boost in performance, the banking sector outpaced the drastic return of the KSE-100 index and posted a remarkable gain of 61.33% YoY.

Elaborating further on the comparative arena, Meezan Bank (MEBL), MCB Bank (MCB), and Habib Bank (HBL) emerged as the top 3 most profitable banks in Pakistan in 2023.

MEBL earned the highest profit of Rs84.48bn, followed by MCB at Rs59.63bn and HBL at Rs56.86bn.

Moreover, the banks that witnessed the highest change in percentage terms in their net income were SNBL, SCBPL, and BAHL with profit growth of 222.61%, 114.78%, and 113.15% YoY, respectively.

Concerning shareholder returns, the sector paid a cumulative dividend of Rs167.75 per share, with United Bank Limited (UBL), MEBL and Bank AL Habib (BAHL) taking the lead for the top 3 ranks after paying a dividend of Rs44, Rs20 and Rs14 respectively.


Market analysts are strongly anticipating the central bank to transit towards policy rate cuts to boost economic activity, which had been restricted earlier due to aggressive inflation in the country.

These evaluations center stage as inflationary pressures have started to ease primarily due to the significant base effect.

As banks' interest income is directly proportional to the policy rate set in the country, this suggests a potential drop in the sector’s inflows through the interest side in the near future.

However, the sector might successfully offset this drawback, as with the economy shifting towards expansion, the role of commercial banks will further materialize.

The population, that was eager to earn higher returns on their deposits, may be inclined to shift towards borrowing and investing as interest rates come down.

Nonetheless, banks would be able to book good returns in the form of lending and generate more non-interest income with the overall growth of the economy.

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Posted on: 2024-03-01T12:43:53+05:00