Pakistan banks’ profits see meteoric rise
Pakistan's listed banks have reported an extraordinary 86%
increase in their net profits for the year ending December 2023, driving total
earnings to an all-time high of Rs572 billion amidst a period of elevated
interest rates in the country.
Despite economic slowdown and subdued industrial activities,
banks managed to achieve unprecedented profitability.
According to Topline Securities’ research analyst Sunny
Kumar, this remarkable profit surge was mainly propelled by a substantial rise
in net interest income (NII) due to the high interest rate environment and
robust balance sheet growth.
In US dollar terms, the profit of listed banks increased by
36% to $2 billion in 2023 compared to the previous year.
Pakistani
banks witness record Rs163 billion profit in third quarter of 2023
In a recent report, economist Sana Tawfik from Arif Habib
Limited highlighted that nearly all listed banks recorded historic high profits
in the calendar year 2023. She attributed this significant profit growth (86%
year-on-year) to policy rate hikes totaling 600 basis points, coupled with a
considerable increase in deposits (over 24% in 2023 compared to 2022).
The surge in net profits was also supported by a 21%
decrease in provisioning for bad loans and a 16% rise in non-interest income
during the year.
Looking ahead, Tawfik anticipates a monetary easing cycle in
the first half of 2024, leading to a decline in interest rates from the current
record high of 22%. Despite this projected decline in sector net interest
margins later in 2024, AHL remains optimistic about the overall profitability
outlook. Factors such as the lagged re-pricing of assets versus funding costs,
balance sheet expansion, sustained non-interest income, and reduced
inflationary pressure are expected to support near-term earnings growth, with
full-year CY24 earnings estimated to increase by 12%.
Government
increases profit rates on USD-based Naya Pakistan Certificates
However, potential challenges such as the implementation of
IFRS-9 and the possibility of non-performing loans exceeding projections could
dampen the sector's financial performance.
Last week, Moody's Investors Service upgraded Pakistan's
banking sector outlook to stable (Caa3) from negative, citing solid
profitability and stable funding and liquidity as key strengths to withstand
macroeconomic challenges and political uncertainties.
Nevertheless, Moody's raised concerns about banks primarily
lending depositor money to the government under high-interest rate and high
inflation conditions, leaving limited funds for private sector lending, which is
crucial for economic growth.
Pakistani
banks lead Asia-Pacific with strong Q4 stock returns
Despite these challenges, Pakistani banks remain heavily
exposed to the government through large holdings of government securities,
accounting for around half of total banking assets.
Furthermore, financial inclusion initiatives and remittances
from non-resident Pakistanis continue to drive domestic deposit inflows, with
customer deposits accounting for 58% of total assets as of September 2023.
In summary, 2023 witnessed exceptional performance in the
banking sector, marked by significant profit growth, increased dividends, and
strong price performance, outpacing the broader stock market index. Customer
deposits also experienced robust growth, attributed to remittances and
government borrowing from local banks.
Source: Express Tribune