Banks'' profits down 18 percent to Rs 39 billion in first quarter of CY18

Pakistan banking sector profits were down 18 percent to Rs 39 billion mainly on account of one-time pension cost and lower capital gains recorded during the first quarter (Jan-March) of CY18. According to an analysis on banking sector profit by Topline Securities, excluding pension and capital gains, profits were up 7 percent to Rs 64 billion. Net Interest Income (NII) of the sector was up 9 percent to Rs 118 billion driven by balance sheet growth, improving deposit profile and recoveries of markup income. This led to higher profits excluding outliers, he added.
Total provisioning reversal during the first quarter of 2018 stood at Rs 976 million against Rs 2 billion in the first quarter of 2017 whereas provisioning expense against international NPLs stood at Rs 138 million in the first quarter of 2018 against reversal of Rs 1.3 billion in the first quarter of 2017.
To recall, UBL booked an above average provision charge of Rs 2 billion against NPLs that kept consolidated total provisioning reversal on lower side during the first quarter of 2018.
Non-Interest Income of banks were down 7 percent as capital gains remained on lower side due to high base effect. Capital gains during first quarter of 2018 declined by 40 percent to Rs 8.1 billion. The other key component of Non-Interest Income, fee, commission and brokerage income continued to post growth on year-on-year basis.
Growth in non-markup expense stood at 7 percent which is lower than historical average and lower than the growth seen in NII of the sector. This led to improvement in PBT of the sector (excluding pension cost and capital gains). Banks including Allied Bank (ABL), Habib Bank (HBL), MCB Bank (MCB) and United Bank (UBL) booked cumulative pension cost of Rs 10.9 billion during the quarter. Recalling, the Supreme Court had ordered these banks to increase minimum monthly pension to Rs 8000/month to pensioners with an annual increase of 5 percent. This led to a one off charge during the first quarter of 2018 which impacted sector''s profitability.