First half of 2013 Top five banks collective profit declines by 10

First half of 2013 : Top five banks’ collective profit declines by 10%
First half of 2013 : Top five banks’ collective profit declines by 10%

KARACHI: The top five banks of Pakistan witnessed 10 percent yearly decline to joint consolidated profit after tax (PAT) of Rs 43.92 billion in first half of 2013 against joint PAT of Rs 48.98 billion in the same period last year due to lower interest rates.

Similarly, on quarterly basis the banks profitability declined by 3.0 percent to combined second quarter of 2013 PAT of Rs 21.67 billion despite tighter regulations on savings accounts coming into play.The core takeaways of reported first half of 2013 earnings were 7.0 percent yearly decline in Net Interest Income (NII), 16 percent yearly increase in total provisions, 8.0 percent yearly growth in non-interest income and 8.0 percent yearly increase in non-interest expenses.

On reported earnings basis, Muslim Commercial Bank (MCB) PAT’s with an increase of 7.0 percent on yearly basis was the key outperformer while National Bank Pakistan’s (NBP) PAT declining by 30 percent on yearly basis was the standout laggard. That said, results were mostly in line with market expectations with NBP being the only below-line posting and that too due to subjective provisions on Bangladesh operations. In this regard, results contain a degree of one-offs, other than NBP these include high capital gains for MCB and United Bank Limited (UBL). At the same time, Allied Bank Limited (ABL) is an outlier with its 29 percent yearly decline in non-interest income reflective of a shift away from money market mutual funds and into government’s securities directly.

Meanwhile, analysts believed that interest rates will average higher in 2014. As a result, with asset quality seemingly under control, analysts tentatively eye big five earnings growth of an impressive 15 percent yearly increase in 2014 where analysts prefer Bank Alflah Limited (BAFL), UBL and ABL.Moreover, big five banks Net Interest Margin (NIM) contraction has led to a 7.0 percent yearly decline in Net Interest Income, total provisions are up 16 percent on yearly basis (ex-NBP: decline of 70 percent), non-interest income is up 8.0 percent and non-interest expenses are up 8.0 percent.

Effective tax rate has come in at 31.6 percent for first half of 2013 as compared to 33.3 percent for corresponding period last year. On a sequential basis, combined second quarter PAT of Rs 21.67 billion is down by just 3.0 percent on quarterly basis as banks seem to have withstood the impact of tighter regulations on savings accounts while capital gains have also been higher.

The State Bank of Pakistan’s (SBP) decision to postpone the monetary policy announcement until September 13, 2013 has clouded immediate-term outlook. With asset quality seemingly under control, analysts tentatively eye big five earnings growth of more than 15 percent yearly in 2014, which should drive the next round of share price performance.