Banks’ profitability grows Rs175bln in 2015

KARACHI: Profitability of the banking sector grew 14 percent to Rs175 billion in 2015, driven by net higher interest income and capital gains, a brokerage said on Friday. 

“The banking sector continued to post strong performance despite tough regulatory measures and falling interest rates,” said a report by the Topline Securities The report said the net interest income was up 20 percent to Rs445 billion and capital gains jumping 85 percent to Rs56 billion in 2015.

The brokerage house analysed all the listed banks in Pakistan, excluding Bank of Punjab and Bank Islami, “whose detailed accounts are not yet available.” The focused banking system represents 98 percent of the total market capitalisation of all the listed banks.

The review said the pre-tax profit of the sector grew 28 percent, “however, higher effective tax rate of 40 percent in 2015 against 33 percent in 2014 contained bottom-line growth to 14 percent.”

The State Bank of Pakistan (SBP) and the government introduced various regulatory measures for the sector including, introduction of a target/policy rate (50bps below discount rate), contraction of interest rate corridor (spread between ceiling/discount rate and floor/SBP repo rate) by 50 basis points to two percent, one time super tax of four percent on bank’s income for the tax year 2015 and flat tax of 35 percent on all the income sources.

Last year, deposits grew 12 percent to Rs9.5 trillion, equal to the growth of 2014. The report said top five banks’ deposits rose 11 percent, whereas deposits of smaller banks grew 15 percent in 2015.

It said deposit mix of the sector, during the year, improved as CASA (current account and saving account) of the sector increased to 76 percent in 2015 from 75 percent during the previous year.

Advances of the sector grew four percent to Rs4.2 trillion in 2015, lower than last year’s growth of nine percent. Advances growth of top five banks was up two percent year-on-year, whereas growth of smaller banks stood at eight percent.

“Lower working capital requirement due to fall in commodity prices and slowdown in large scale manufacturing kept credit growth in check,” the report said.  Banking sector’s investment in Pakistan Investment Bonds increased to three trillion rupees, 48 percent of investment, in 2015 as against Rs2.4 trillion, 50 percent of investment, in 2014.