The commercial banks of Pakistan have earned a record high net profit of Rs85 billion in the quarter ended September 30, 2022. The freefall in the value of the rupee against the US dollar has remained a major driver of growth in bank earnings.
Bank profits more than doubled to Rs 85 billion in the current quarter compared to the previous quarter (Apr-June) of 2022. In these three months, compared to the same time last year, the profit grew by 26% on an annual basis.
In a tweet published online, Alpha Beta Core (ABC) CEO, Khurram Schehzad observed,
“The foreign exchange (rupee-dollar exchange rate) income growth for these banks ranged between 50%-550% on a year-on-year basis with the US dollar going up by 46% from Rs157 in June 2021 to Rs229 by June 2022.”
“Banking and forex are the best businesses to have in Pakistan,” he added.
Ismail Iqbal Securities claims that while strong fees and FX income have been one of the primary revenue drivers, rising interest rates have assisted in boosting net interest income (NII).
Banks have so far been relatively unaffected by the COVID and interest rate shocks. While provisions have grown, they are still on the low side, particularly for loan portfolios. The sole setback was the change in the tax code. It resulted in an effective tax rate of 52% compared to 41% during the same time period last year.
Future Outlook
Although most of the deposits and assets have been revalued, the IIS analyst stated that the brokerage house still anticipates that net interest income will increase given that the 125 basis point asset repricing from July has yet to take effect.
“The provisions might see some uptick as the impact of the economic slowdown will be more evident in the coming quarters, while provisions on sovereign bonds might also increase for some banks if Pakistan’s Eurobond prices do not recover in the ongoing quarter,” he predicted.
Deposit growth is expected to be mute in the December 2022 quarter. As banks try to achieve advance to deposit ratio (ADR) targets.
The growth in bank deposits came in at 15% year-on-year. ADR improved to 48.6%, as compared to 47.7% in June and 46.9% in the same period last year.
