KARACHI: Pakistan’s listed banks’ profitability declined 4 per cent on a year-on-year basis in the third quarter of 2021 to Rs68 billion on the back of margin compression and fall in the net interest income.

Analysts at Topline Securities said the NII of the bank declined 6 per cent YoY to Rs199 billion, as the policy rates remained in single-digit in 2021, impacting the banking sector margins.

The interest income went down 5 per cent YoY to Rs437 billion, whereas interest expense declined 17 per cent YoY to Rs238 billion.

The non-interest expense of the sector went up 10 per cent YoY in line with the inflation to Rs134 billion in the third quarter of 2021, keeping a check on the sector’s profitability.

However, provisioning charge declined 76 per cent YoY to Rs6.8 billion in the third quarter of 2021, offering some cushion to the banks, as they continue to fare better in terms of their non-performing loans.

The improvement in Pakistan’s macros and across-the-board sector-wise recoveries have led to lower provisioning charges.

The non-interest income was also up 3 per cent YoY mainly on the back of strong growth in fee and commission income. The cost to income ratio of the sector clocked-in at 52 per cent in September 2021 against 45 per cent in September 2020.

In the nine months of 2021, the sector’s earnings went up 7 per cent YoY, despite lower NII, which went down 4 per cent YoY. A sharp fall in the provisioning expense (down 73 per cent YoY) and higher non-interest income (up 5 per cent YoY) led to higher profits.

“For our analysis, we have taken all banks that have announced their financial results except the Summit Bank (SMBL) and Silk Bank.”

Profitability of Samba Bank Limited (SBL), Standard Chartered Bank (SCBPL) and the United Bank Limited (UBL) posted highest growths of 64 per cent YoY, 52 per cent YoY, and 47 per cent YoY, respectively, during the third quarter of 2021. The profitability of the Bank of Khyber (BoK), National Bank of Pakistan (NBP) and Soneri Bank Limited (SNBL) recorded declines of 62 per cent YoY, 31 per cent YoY and 21 per cent YoY, respectively.

In terms of NII growth, the banks, including the National Bank of Pakistan (NBP), Bank Al Habib Limited (BAHL) and the MCB Bank Limited (MCB) recorded declines of 20 per cent YoY, 18 per cent YoY, and 16 per cent YoY, respectively during the period under review.

JS Bank Limited (JSBL), Bank of Punjab (BoP) and Samba Bank Limited (SBL) posted NII growths of 50 per cent YoY, 44 per cent YoY and 36 per cent YoY, respectively.

On a sequential basis, the Bank of Khyber (BoK) recorded NII growth of 21 per cent on a quarter-on-quarter basis; followed by Bank Islami Pakistan Limited (BIPL) and Faysal Bank Limited (FABL), which grew 15 per cent QoQ each. SNBL and Allied Bank Limited (ABL) posted a decline of 8 per cent QoQ and 5 per cent QoQ, respectively.

“Going ahead, we now expect NII to improve, given rising policy rate, which will bode well for the sector’s profitability.