Banking sector’s annual profit flat at Rs175bln

KARACHI: Annual profits of listed banks remained flat at Rs175 billion as their net interest income fell two percent to Rs428 billion in 2016, a brokerage reported on Tuesday. 

Analyst Umair Naseer at Topline Securities said banking sector’s profit grew only one percent in 2016 over 2015. “Net interest income was down due to retirement of significant chunk of high-yielding Pakistan Investment Bonds and lower interest rates,” he added. “Contraction in margin, however, was somewhat compensated by volumetric deposit growth, up 14 percent slightly higher than the expectations.” The listed banks constitute 92 percent of the total banking sector’s deposits. The State Bank of Pakistan, in its latest report, warned that soft interest rates scenario and a falling investment in the government papers could erode banks profits in the current quarter of 2017.

Non-interest income of the sector also fell three percent to Rs180 billion mainly driven by lower capital gains in 2016. Capital gains booked against bonds and equities by the banks dropped nine percent to Rs48 billion due to high base effect. 

The banking sector’s non-interest expense increased eight percent to Rs319 billion, affecting the sector’s bottom-line. “It, however, remained lower than historical average,” Naseer said. 

In 2016, total provisions of the sector sharply declined to Rs2.3 billion in 2016 from Rs34 billion in 2015. This was largely driven by major recoveries of non-performing loans amid improving economic indicators.  

Naseer said amongst top five banks, NBP posted the highest profit growth of 15 percent in 2016, followed by UBL, which registered six percent growth in profitability. NBP’s earnings were supported by sharp recovery in provision reversals against non-performing loans. Provisions stood at Rs708 million in 2016 versus Rs10.8 billion in 2015. UBL also benefited from lower provisions, down 79 percent and higher net interest income, up two percent. Profits of Samba Bank and Bank Al Habib grew 26 percent and 11 percent, respectively.