Topline Securities has prepared a review of performance of commercial banks listed at Pakistan Stock Exchange (PSX) for second quarter of 2020 (2QCY20). It covers 18 banks out of a total listed 20 banks, representing 99% of the banking sector’s capitalization at the PSX.
Reportedly profit after tax of these banks has increased by 66%YoY in 2QCY20, which can be attributed to: 1) re-pricing of liabilities and 2) capital gains on government securities. The profits are also up by 44%QoQ, driven by instant benefits of decline in interest rates.
Net Interest Income (NII) increased by 41%YoY, while Non-Interest Income improved by 36%YoY during the period under review.
A against this, provisions increased by 212%YoY, where majority of the banks booked General Provisions in light of COVID-19. This is a precautionary measure adopted by banks even if they feel that their respective loan book is not under particular duress.
The cumulative absolute increase in NII and Non-Interest Income were Rs63 billion and Rs17 billion (total Rs80 billion) respectively, whereas Provisions and Operating Costs are higher by Rs30 billion and Rs6 billion (total Rs36 billion) respectively.
In absolute terms, the highest quarterly profit has been earned by HBL (Rs11.0 billion) followed by NBP (Rs10.9 billion), MCB (Rs6.8 billion) and MEBL (Rs6.2 billion).
In terms of NII, the highest YoY increases were recorded by SNBL (71%), AKBL (67%), BAHL (63%), NBP (58%) and JSBL (57%).
NII of these banks was driven by higher investment income. The banks have aggressively bought PIBs, as view shifted towards declining interest rates at the behest of COVID-19. As a result, Interest Earned increased by 24%YoY, but was down by 4%QoQ for 2QCY20.
Top banks with the highest YoY increases in Interest Earned were SNBL (45%), BAHL (40%) and NBP (40%).
As against this, Interest Expense increased by only 12%YoY, but down 21% QoQ due to immediate re-pricing of deposits. The bank’s with least YoY increases in deposit costs were ABL (11%), MCB (6%) and FABL (4%).
Non-Interest Income also increased by 36%YoY even though Fee Income declined by 22%YoY due to COVID-19. The main reasons for increase were: 1) improvement in Forex Income of 23%YoY and 2) capital gains which grew to Rs18.7 billion as against a loss of Rs2.4 billion for the same period last year. Capital gains were primarily driven by gains on government papers.
To recall, during 1QCY20 under the relief measures, banks booked impairment on equity book to an extent. This quarter we also saw some reversals given the market performance in 2QCY20.
The Cost to Income was at 43% for 2QCY20 as compared to 58% for 2Q2019 and 55% for 1QCY20. The improvement was a function of higher income along with an increase in Operating Expenses by 6%YoY.
The lowest Cost to Income was booked by SCBPL (26%), BOK (34%), MCB (39%), MEBL (40%) and UBL (40%). The least growth in costs was recorded by HBL (5%), UBL (4%) and MCB (no change).
As expected, provisions for the listed banks grew by 212%YoY during the quarter. The increase has been dominated by loan provisions of which certain percentage has been allocated due to COVID-19 as general provisions.
The year 2020 has been adversely affected by the COVID-19. In a series of emergency/regular meetings, the Policy rate has been brought down by 6.25% to 7% by State Bank of Pakistan.
Additionally, with the interest rate corridor now symmetrical to the Policy Rate, banks’ MDR is 1.5% below policy rate from 2%.
Due to falling interest rate scenario, banks’ NIMs will come under pressure during 2HCY20 due to assets re-pricing.