Top 20 banks’ combined earnings total Rs46.6 billion

Amount 19% higher than that of last year; riskless govt securities hold key.

KARACHI: The combined earnings of 20 listed Pakistani banks in July-September clocked up at Rs46.6 billion, which is 19% up from the same three-month period of the last year.

According to data compiled by Topline Securities, all listed commercial banks, except BankIslami, recorded earnings growth of 13% in Jul-Sept over its preceding quarter. The rise in earnings is mainly driven by an improvement in banks’ net interest income, which also shot up by 19% to Rs112.8 billion in Jul-Sept year on year.



The rise in banks’ profitability in the last nine months -- up 20% on an annual basis -- is rather surprising in the wake of continuous decrease in interest rates.

The benchmark interest rate stands at a historic low of 6% after the central bank reduced it consistently since 2014 in view of declining inflation. This has also resulted in the smallest banking spread recorded in over a decade.



According to research analyst Umair Naseer, banks have invested heavily in long-term Pakistan Investment Bonds (PIBs), which provided them with a shield against falling interest rates. Investments of the banking sector entities, including non-listed banks, were equal to 71% of their total deposits at the end of the third quarter of 2015. In contrast, the investments-to-deposits ratio (IDR) stood at 56% in the comparable period of the preceding year.



In fact, the end-of-September IDR is the highest since 2010. This indicates the banks’ preference for riskless government securities, which has contributed heavily to their impressive profitability despite declining interest rates and shrinking banking spreads.

Notable increase in the profit per share in Jul-Sept was recorded by Bank of Khyber (156%), JS Bank (101%), Bank Alfalah (67%), Habib Metro Bank (54%), Habib Bank (38%), Bank of Punjab (35%) and Bank Al Habib (28%), data gathered by Topline Securities shows. The rise in Habib Bank’s earnings can be attributed to unusually high capital gains (Rs5.5 billion) that it booked in the last quarter. Capital gains booked in Jul-Sept by Habib Bank alone constituted a major chunk of total capital gains (Rs13.9 billion) recorded by all listed banks over the same quarter.



Naseer says the quarterly rise of 13% in after-tax profitability of listed banks was because of a substantial drop in the effective tax rate in the third quarter. The effective tax rate in Jul-Sept was 35% as opposed to 52% in the preceding quarter when banks had to pay a one-off super tax of 4% on their income.

Published in The Express Tribune, November 4^th, 2015.

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