Pakistan Banks Show Strong Performance in 2015

Pakistani banks showed a strong performance in 2015 in spite of tough regulatory measures and falling interest rates, showing reported growth of 15 percent or 175 billion rupees, according to a latest report.

Pre-tax profit of the sector grew by 28%; however, higher effective tax rate of 40% in 2015 vs. 33% in 2014 contained bottom-line growth of 14 percent, according to the report by the Karachi-based Topline Securities Brokerage House.

The banks included in the analysis represent 98 percent of total market capitalization of all listed banks and does not include Bank of Punjab and Bank Islami (BIPL), whose detailed accounts are not yet available.

State Bank of Pakistan (SBP) and Govt. introduced various regulatory measures for the sector including;  introduction of a target/policy rate,  contraction of interest rate corridor (spread between ceiling/discount rate & floor/SBP repo rate), one time super tax of 4% on bank’s income for tax year 2015 and flat tax of 35% on all sources of bank’s income.

SBP also lowered policy rate by 350 basis points to 6% in 2015 as against decline of 50bps in 2014. Margins of banks are typically affected with cut in policy rate as cost on floating saving and fixed deposits normally go down, whereas, cost on non-remunerative deposits (33% of total deposits) remain unaffected.

Despite these measures, banks reported strong earnings growth mainly due to major investment in high yielding long term Pakistan Investment Bonds (PIBs) and deposit growth.

Earnings of top 5 banks in terms of deposits grew by 9% to Rs122bn in 2015, whereas smaller banks – all listed banks excluding Top 5 – outperformed the sector as profits grew by 38% to Rs54bn.

Within top 5 banks, National Bank (NBP) reported highest earnings growth of 25% helped by above average deposit growth. Smaller banks, Samba bank (SBL) and Faysal Bank (FABL) recorded earnings growth of 90% and 71% respectively, driven by a sharp rise in capital gains on PIBs.

Deposits of the sector grew by 12% to Rs9.5trn in 2015, which is in line with last year’s growth of 12%. Top 5 bank deposits rose by 11%, whereas deposits of smaller banks grew by 15%.

JS Bank (JSBL) recorded highest deposit growth of 31%, whereas MCB recorded lowest deposit growth of 3%. JSBL continued to enjoy strong deposit growth in continuation to last few years following rapid branch expansion. On the other hand, MCB focused on improving deposit mix affecting growth.

Within the top 5 banks, Habib Bank (HBL) and Allied Bank (ABL) reported highest credit growth of 6% and 5% respectively. Within smaller banks, advances growth of JS bank (JSBL) and NIB bank (NIB) stood at 35% and 18%, respectively in 2015.

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