Pakistan Banks’ Earnings to Fall 19% in 1Q2025
Staff Report
Topline Banking Universe is likely to post a 12% QoQ decline in Pakistan Banks’ earnings in 1Q2025, amid a fall in Net Interest Income (NII) and Non-Interest Income.
NII of the banks in the Universe is expected to decrease by 11% QoQ to Rs279bn due to (1) a decline in the average policy rate from 15.2% in 4Q2024 to 12.3% in 1Q2025, and (2) a 10% QoQ decline in advances growth.
According to SBP’s weekly publication, banking sector advances declined by 10% QoQ, from Rs15.6trn as of Dec 27, 2024, to Rs13.9trn as of Feb 28, 2025.Banks’ Profit Hits Rs158bn in 3Q2024
Non-Interest Income of the Topline Universe is also expected to decline by 25% QoQ in 1Q2025, mainly due to a drop in capital gains.
Total provision expenses for the Topline Universe are projected at Rs10bn in 1Q2025, down 72% QoQ. The decline is attributed to the absence of one-off provisions recorded under IFRS-9 and specific provisions by a few banks.
Non-Interest Expenses are expected to rise by 5% QoQ to Rs189bn in 1Q2025, in line with inflation and branch expansion.
The sector’s effective tax rate is expected to come in at 52% in 1Q2025, compared to 56% in 4Q2024. For United Bank (UBL), we have assumed an effective tax rate of 50%, as we believe the bank will benefit from tax relief on SILK Bank-related losses.
On a YoY basis, profitability is expected to decline by 19% in 1Q2025, mainly due to a 32% YoY increase in Non-Interest Expenses to Rs189bn. However, despite the decline in the policy rate, NII is projected to rise by 3% YoY, supported by volumetric growth.
Given the comfortable buffers above their respective minimum adequacy levels and robust profitability growth, banks are expected to maintain a higher dividend payout in 1Q2025.
We maintain a market weight stance on the banking sector, with Meezan Bank (MEBL) and Habib Bank (HBL) remaining our preferred picks,” Topline said.
