Higher interest rates boost profit of Pakistan commercial banks.

 
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Byline: Shabbir Kazmi

During 3QCY19 aggregate profitability of listed Pakistani commercial banks (excluding Silk Bank) rose to Rs45.5 billion, up 48%YoY. The increase in profit is primarily on the back of a 33%YoY increase in net interest income and 17%YoY growth in non-interest income. Biggest increase was posted by BankIslami, followed by Habib Bank and Meezan Bank.

Cumulative 9MCY19 profits of the listed banks grew by 20%YoY to Rs127.7 billion. In absolute terms, the highest quarterly profit was earned by MCB Bank (Rs5.7 billion) followed by National Bank (Rs5.2 billion) and UBL Bank (Rs5.0 billion). Net Interest Income (NII) of the banks during the quarter under review increased by 33%YoY to Rs158 billion. Over 12-month period average policy rate has increased by 5.5% resulting in the higher NII of the sector. NII of Meezan Bank (87%YoY), BankIslami (73%YoY) and Standard Chartered Bank 952%YoY) recorded the highest pace during the period. On a sequential basis, NII growth was 9%QoQ primarily due to 1ppts hike in July 2019 and delayed asset re-pricing which increased the sector's interest expenses for the quarter.

It is pertinent to mention that mid-tier banks outperformed the larger peers in terms of NII growth primarily due to better sensitivity to interest rates. Non interest income during the quarter was up by 17%YoY, Rs46 billion, which was driven by fee income (up by 15%YoY) and forex income was up 30%YoY due to volatility in currency market. Non-interest expense increased 17%YoY primarily driven by growth recorded in operating expense due to inflation, depreciation of Pak rupee and branch expansions. During the quarter, listed banks recorded provision expense of Rs12.8 billion, rising by 82%YoY. During the quarter highest provision was booked by NBP of Rs3.4 billion followed by UBL of Rs2.0 billion, while reversal in provisioning was recorded by ABL of Rs67 million.

Meezan Bank (MEBL) posted profit after tax of Rs3.9 billion for 3QCY19 (EPS: Rs3.0), up 86%YoY on the back of increase in net spread earned; up by 87%YoY. The Bank also announced interim cash dividend of Rs1.0/share. Cumulative earning for 9M2019 of the Bank was recorded at Rs8.5 per share; up 77% as compared to Rs4.8 for the corresponding period last year.

Analysts attribute significant rise in net spread earned to the non-applicability of Minimum Deposit Rate (MDR) on Islamic banks which has resulted in higher sensitivity of income to the tightening monetary policy. On quarterly...

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