LAHORE: The country’s banking sector’s profit soared by 19 per cent to Rs46.6 billion in third quarter of current calendar year 2015, mainly due to 19 per cent growth in net interest income (NII).
Amongst top banks, Bank Alfalah (BAFL), Habib Bank (HBL) and United Bank (UBL) enjoyed the highest profitability growth of 67 per cent, 38 per cent and 19 per cent, respectively. NII of the sector grew by 19 per cent to Rs112.8 billion which was supported by major investment in high yielding long-term Pakistan Investment Bonds (PIBs) by banks which constitutes around 34 per cent of deposits in 3Q2015 vs 25 per cent in 3Q2014. This coupled with volumetric growth in other assets supported NII of the sector despite falling interest rates.
In a declining interest rates scenario in Pakistan, margins of banks are typically affected as cost on floating saving and fixed deposit normally go down, whereas, non-remunerative deposits (33 per cent of total deposits) remain unaffected. However, investment in long-term PIBs has provided shield against falling interest rates.
To recall, SBP (central bank of Pakistan) has cut discount rate by 300bps in 2015 to date on account of falling inflation. Within big banks, NII of Allied Bank (UBL) was up by 35 percent followed by United Bank (UBL) and National Bank (NBP), up by 25 percent and 18 percent, respectively. Non-interest income of banks also surged by 20 percent YoY to Rs45.2 billion mainly led by capital gains on bonds and stocks, which is up 83 percent to Rs13.9 billion.
