Banking sector contributed most to Pakistan stock market's remarkable 2024 rally

Pakistani banks performed remarkably in 2024, with share prices of nine listed banks gaining in the vicinity of 92% to 161%. This means they outpaced the Pakistan Stock Exchange's overall 84% returns, which already made it the world's second best-performing market.

Data received by Nukta from multiple sources revealed that United Bank Limited shares gave returns of 161%, followed by Soneri Bank's 137%, National Bank of Pakistan's 108%, Bank Alfalah's 107% , Bank of Punjab's 99%, Allied Bank Limited's 95%, Habib Metropolitan Bank's 94%, and MCB Bank Limited's 92%.

Contribution to KSE-100 index

The banking sector's contribution to the benchmark KSE-100 index's gains was at the very top — out of 52,676 points gained in 2024, banks contribution was 13,847 points or around 26.3%.

Of this 3,957 points arrived from UBL share price appreciation. Overall, UBL's contribution was the third-biggest in any sector, topped only by Fauji Fertilizer's 6,086 points and MARI Petroleum's 3,977 points.

Meanwhile, MCB Bank helped the index gain nearly 1,993 points, Bank Al-Habib 1,568 points, Habib Bank 1,480 points and Meezan Bank 1,374 points.

On the dividend front as well, banks' ability to pay profits to shareholders rose by 23% in the nine months ended Sept 30.

Banks paid around PKR 190 billion compared to PKR 154.5 billion during the same period in 2023.

According to an analyst, banks will start announcing results soon, which is likely to maintain upbeat mood in the market. The banking sector is likely to give another PKR 60 billion as dividends with another PKR 140 billion added as profits.

However, banks remain major buyers of long-term and short-term government bonds where yields have fallen considerably following the central bank's record 900 basis points-cut but participation has soared, which might offset the falling rates.

Bank profits and ADR

The banks' profit in nine months of 2024 amounted to PKR 438 billion compared to PKR 409 billion a year earlier. Similarly, accumulation of profit before tax was around PKR 958 billion compared to PKR 566 billion during the same period in the previous year.

This number revealed that banking sector contributed a huge amount of PKR 520 billion to the government as tax, which worked out to be more than 50% of their profits.

The taxed amount in 2024 would be much higher after the government reached an agreement with the banking industry to increase taxes after nearly all banks managed to reach the minimum advance-to-deposit ratio (ADR) to avoid paying additional taxes.

In an effort to stimulate private sector lending, the government had imposed additional taxes on banks that failed to meet the minimum ADR of 50%. However, banks came out with different measures to raise advances in recent months and data received by Nuktatill December 6 showed that the sector's ADR had reached 49.7%.

Subsequently, the government raised the tax on banks to 44% from 39% this year while in coming years it will be reduced by 1% in 2025 and by another 1% in 2026.

This tax is set to help the government collect an additional PKR 60-70 billion annually.

Overall KSE-100 performance

Banks clearly outshined the stock market, whose benchmark KSE-100 index recorded the second highest-ever gains in 2024. Prior to this, the index had climbed by 112% in 2002.

The PSX's market capitalization also increased by 63% to $52 billion but is still below its 2017 peak of $100 billion. The decline is due to rupee devaluation, large dividend payouts, and fewer new listings.

Similarly, market capitalization to GDP of Pakistan now stands at 12% compared to 9% in 2023. However, it is also still lower than last 10-year average of 16%.