Pakistan’s listed banks saw a 14% year-on-year increase in profitability during the first quarter of 2025 (1Q2025), reaching Rs173 billion, according to Topline Securities.
The sector’s net interest income (NII) rose by 23% year-on-year to Rs536 billion, driven by volumetric growth, favorable repricing, and a higher yield on repo borrowings. Despite a decline in interest rates, NII showed a 2% quarter-on-quarter (QoQ) growth.
Interest income for the sector decreased by 19% YoY and 13% QoQ, standing at Rs1.4 trillion, while interest expenses dropped by 32% YoY and 20% QoQ to Rs0.9 trillion. Non-interest income saw a 6% YoY increase, although it fell by 28% QoQ to Rs133 billion, primarily due to a decline in capital gains and fees & commission income.
The sector’s non-interest expense increased by 19% YoY, reaching Rs293 billion in 1Q2025, although it dropped by 19% QoQ. The increase was attributed to inflationary pressures and branch expansions, while the QoQ decline was largely due to the absence of one-time pension expenses recorded by National Bank of Pakistan (NBP).
The Cost-to-Income ratio for the banking sector stood at 44% in 1Q2025, consistent with the ratio from 1Q2024, but significantly lower than 51% in 4Q2024. Provisioning charges for the sector dropped by 36% YoY to Rs6 billion, with a substantial 83% QoQ decline, largely due to improved asset quality and the implementation of IFRS-9.
The effective tax rate for 1Q2025 was 53%, up from 50% in 1Q2024 but down from 56% in 4Q2024. The government’s removal of the ADR-related tax and the increase in the overall tax rate from 49% to 53% for the calendar year 2025 contributed to the rise.
In terms of profitability, United Bank (UBL) led the sector with earnings of Rs36.1 billion in 1Q2025, followed by Meezan Bank (MEBL) at Rs22.4 billion, National Bank (NBP) at Rs22.1 billion, Habib Bank (HBL) at Rs16.6 billion, and MCB Bank (MCB) at Rs14.7 billion. However, Bank Makramah (BML) recorded a loss of Rs0.9 billion during the quarter.
Regarding NII growth, UBL posted the highest YoY growth at 200%, followed by NBP at 139%, Bank of Punjab (BOP) at 75%, Askari Bank (AKBL) at 70%, and Bank of Khyber (BOK) at 45%.
Despite a challenging macroeconomic environment, most banks maintained their dividend payouts, and this trend is expected to continue due to healthy profitability in the sector.
Topline Securities said it maintains a “market weight” stance on the banking sector, with Meezan Bank (MEBL) and Habib Bank (HBL) as preferred picks.
