Inside Financial Markets

Q2CY16: banks’ pre-tax profit down four percent YoY

Pre-tax profit of the banking sector fell by 4 percent (YoY) to Rs 82.3 billion during the second quarter of this year (CY16), mainly due to 14 percent decline in non-interest income and 8 percent uptick in expenses. However, post-tax profit of listed banks moved up by 8 percent due to lower effective tax rate following varying tax treatment by banks. Effective tax rate in 2Q2016 declined to 49 percent against 54 percent in the same quarter last year.

According to Topline Securities report on Pakistan banks’ profit, non-interest income fell by 14 percent as capital gains during the quarter remained on the lower side. Banks had realised above average capital gains of Rs 22.5 billion during 2Q2015 mainly on Pakistan Investment Bonds (PIBs) in order to benefit from declining interest rates. In 2Q2016, capital gains realised by banks came down to Rs 14.3 billion as interest rates have likely bottomed out. “We believe that this number could come down further and starts normalising as major chunk of PIBs mature from 3Q2016,” analysts at Topline said.

Net Interest Income (NII) of the sector grew by 4 percent YoY to Rs 121 billion as investment in PIBs continued to support interest income of banks despite falling interest rates.

Strong deposit growth, major investment in PIBs and improving deposit mix of the sector has led to NII improvement. Along with higher NII, provisioning expense of the sector also declined by 61 percent to Rs 4.1 billion amid improving macros and multi-year low interest rates. In addition, non-interest expense was up 8 percent to Rs 85.7 billion in line with historical trends. Topline Banking Universe (top 7 banks in terms of deposits) outperformed the overall sector reporting profit growth of 22 percent YoY. Similarly, their pre-tax profits were up 2 percent YoY to Rs 63 billion. National Bank (NBP), the second largest bank in terms of total deposit reported strong earnings growth of 119 percent YoY in 2Q2016 on the back of lower provisioning expense.

NII of Topline Banking Universe was up 6 percent whereas non-interest income was down 9 percent only. Umair Naseer, analyst at Topline, said that advances during 2Q2016 grew by 12 percent in 2Q2016 against 10 percent in 1Q2016 and 7 percent in the similar period last year.

Pickup in advances growth is attributed to higher commodity financing during the quarter. Industry experts anticipate that advances growth will remain in the range of 9-10 percent in 2016 higher than last 3-year average of 7 percent, he added. He said banks are likely to focus on consumer financing specifically car financing to attract higher yields on loans in a low interest rate scenario. “As per our sources, the recent car financing scheme launched by Habib Bank (HBL) got major attention in a short span of time,” he added. Deposits of the sector in 2Q2016 were up 10 percent YoY versus 12 percent in 1Q2016 and 13 percent in 2Q2015. Investments during the same period were up 16 percent YoY as banks continued to invest in government securities.

Baqar Hussain

A Wannabe CFO, just had stepped in the corporate sector, willing to explore every aspect here and learn as mush as i can, awareness for those who dont, get the info where ever possible and stay up to date always.

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)