Banks expected to post decline in profits in second quarter

Web DeskWeb Editor

15th Jul, 2021. 04:17 pm
State Bank of Pakistan

KARACHI: The profitability of banks is expected to slump for the second quarter of the calendar year 2021 ended June 30, 2021, owing to a decline in net interest income, analysts said on Thursday.

The analysts at the Topline Securities said the earnings of banks may decline 19 per cent Year-on-Year (YoY) to Rs42 billion in the second quarter of 2021, mainly driven by a fall in the net interest income (NII), which is expected to decline 10 per cent YoY to Rs144 billion during the period.

They attributed the fall to sharp cuts in the policy rate by the State Bank of Pakistan (SBP) to support economic activity, as the SBP lowered the policy rate by 625 basis points to 7 per cent during 2020.

The non-interest income of banks is also likely to go down 12 per cent YoY, mainly due to high base in the second quarter of 2020, primarily due to higher income from dealings in foreign currency and capital gains.

The provision expense during the quarter is also expected to fall 55 per cent YoY to Rs16 billion, as the banks had increased general provisions last year to cover for any potential uptick in the C(NPLs) given concerns over the asset quality during the Covid-19.

The analysts believe the provision charge for the banks, except for a one-off corporate case, is likely to remain contained. The banks’ coverage ratio has increased to 97 per cent in the first quarter of 2021 against 87 per cent at the end of 2019.

The non-interest expense of the sector during the quarter is likely to grow 11 per cent YoY in line with the rising inflation and expansion in the branch network.

In the first half of 2021, the earnings are expected to clock in at 5 per cent YoY higher, as the provisions normalise during the year.

The net interest income is likely to decline 2 per cent YoY, whereas the non-interest income and expenses are expected to increase 3 per cent YoY and 7 per cent YoY, respectively. Going forward, the expected hike in the interest rates from the fourth quarter of 2021 is likely to support the earnings of the sector.

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