KARACHI: The profitability of the country’s banking sector remained flat at Rs47.8 billion during the first quarter of fiscal year.
According to a research report of the Topline Securities, the profitability has been contained due to lower capital gains; restricted Net Interest Income (NII) growth; and uptick in non-interest expense during the quarter under review.
The research included all listed banks that have announced their financial results for the first quarter so far, excluding Bank Islami (BIPL) and Bank of Punjab (BoP). In the quarter, banks realised capital gains of Rs13.3 billion, down from Rs16.7 billion in the same period of the last year.
This decline is due to high base effect, as banks booked huge gains in the first quarter 2016 against long-term Pakistan Investment Bonds (PIB) to benefit from declining interest rates. Consequently, non-interest income was down 3 percent year on year (YoY) to Rs48 billion in the first quarter.
NII growth of banks stood at 2 percent YoY as against an increase of 30 percent YoY in the same period last year mainly due to cut in policy rate by 350 basis points to 6 percent during 2015.
Due to a declining interest rates scenario in Pakistan, margins of banks are negatively affected as cost on floating saving and fixed deposit normally go down, whereas non-remunerative deposits (33 percent of total deposits) remain unaffected.
Non-interest expense of banks was up 9 percent to Rs78 billion led by higher admin expense. Higher non-interest expense coupled with lower capital gains and restricted NII growth kept bottom-line in check.
Total provisioning expense of the sector declined by 71 percent to Rs2.9 billion as banks witnessed recovery in non-performing loans. Lower provisioning expense provided some relief to the profitability as pre-provisions and capital gains profitability was down 3 percent YoY.
Top seven banks including Allied Bank (ABL), Bank Alfalah (BAFL), Bank Al-Habib (BAHL), Habib Bank (HBL), MCB Bank (MCB), National Bank (NBP) and United bank (UBL) reported earnings decline of 2 percent YoY during the quarter mainly due to sharp fall in capital gain for HBL.
