Banking profitability in half-year rises 13%

KARACHI: The profit of banking profitability for the half-year ended June 30, 2021 registered a growth of 13 per cent, according to the analysis of Arif Habib Limited.

The jump in the half-year earnings of banks listed on the Pakistan Stock Exchange (PSX) was primarily led by significant decline in provisioning expense.

On a sequential basis, higher net interest income and non-funded income resulted in improved profitability of the sector during the second quarter of 2021.

The net interest income for the sector was up 8 per cent on a quarter-on-quarter (QoQ) basis during the second quarter of the current year.

While the impact of asset re-pricing has fully reflected, the healthy volumetric growth in deposits supported the banks’ balance-sheets, with the deposits posting a staggering 7 per cent QoQ uptick.

On a yearly basis; however, a 10 per cent decline was witnessed in the net interest income mainly due to the lower interest income.

The interest expense on a yearly basis was down 15 per cent YoY, while increasing 11 per cent QoQ. Spreads of the sector settled at 4.5 per cent as of June 2021 against 4.4 per cent recorded in the last quarter.

Meanwhile, the non-funded income started gaining momentum during the second quarter of 2021, up 2 per cent QoQ with the foreign exchange and dividend income, posting a jump of 25 per cent QoQ and 19 per cent QoQ, respectively.

On a yearly basis, the fee income posted healthy gains attributable to higher trade volumes and robust economic activity, up 41 per cent YoY, but a decline of 55 per cent YoY on the capital gains tax on securities kept the overall non-funded income down one per cent YoY during the second quarter of 2021.

Provisioning of the banking sector posted a decline of 79 per cent YoY / +46 per cent QoQ during the second quarter of 2021.

The yearly decline in the provisioning came primarily on account of reduction in the provisioning expense this quarter. To recall, aggressive general provisions were built throughout the last year to absorb potential shocks from the non-performing loans (NPLs) accretion post-expiry of loan deferral facility.

Moreover, the improved economic activity across the country also helped a few banks book reversals in the provisioning this quarter. The yearly decline in the provisioning is mainly due to a high base last year on account of heavy provisioning incurred by the United Bank Limited (UBL) and the National Bank of Pakistan.

The operating expenses of the sector remained flattish on YoY basis, while increasing 2 per cent QoQ. The cost/income came down to 48 per cent during the second quarter against 51 per cent in the same period of the last year and 50 per cent recorded in the first quarter of 2021.

A significant profitability trends during the second quarter of 2021 included the Bank of Punjab, which posted a massive 76 per cent YoY jump; followed by the Bank Alfalah (+24 per cent YoY) and the United Bank Limited (+20 per cent YoY).