Pakistan banks cash in on dollar sales despite profits taking a hit

Despite some financial bumps in the last quarter, Pakistan's banking sector still managed to rake in solid profits in 2024, thanks in part to non-interest income – especially gains from dollar sales.

According to companies reports, the country’s listed banks posted a total profit of PKR 597 billion in 2024, a 5% increase from the previous year. However, the last quarter of the year wasn't as rosy, with profits slipping 2% sequentially and 1% annually.

Banks thrive on FX gains

United Bank Limited (UBL) posted a 34% yearly increase in profit-after-tax (PAT) to PKR 75.8 billion during calendar year 2024 (CY24). Net interest income (NII) rose by 16% to PKR 173 billion, while non-interest income surged by a staggering 132% to PKR 83.6 billion.

The bank maintained cost discipline, with operating expenses growing by 10%. But it wasn’t all smooth sailing. One of the biggest factors squeezing bank earnings was the sharp 1,000 basis points cut in interest rates over the year (the expansionary monetary policy stance started to take place in June 2024 after a persistent status quo series of 22%), which impacted net interest margins and profitability.

Despite that, banks found a way to stay in the green – cumulatively the sector’s core driver net interest income soared 9% as compared to the previous year, reaching PKR 1.89 trillion.

More evidently, the non-interest income surged 50% in 2024 as compared to the previous year, reaching PKR 560 billion. A significant chunk of that came from gains on foreign exchange transactions, which proved to be a lucrative bet for banks amid currency volatility.

Meezan Bank, UBL, MCB and HBL post strong profits

Among other top performers, Meezan Bank lead the way with a whopping PKR 101.5 billion in profit, followed by United Bank Limited (UBL) at PKR 75.8 billion, MCB Bank at PKR 63.5 billion, and Habib Bank Limited (HBL) at PKR 57.8 billion. Standard Chartered Bank (SCBPL) also had a solid year, recording PKR 46.1 billion in profit.

On the flip side, Bank Makramah (BML) was the only major player to record a loss, posting a PKR 5.2 billion deficit.

The cost of doing business

While banks made money, their expenses also shot up. Non-interest expenses jumped 30% in fourth quarter of 2024 (4Q2024), as compared to the same period last year, largely due to higher operational costs and a one-time pension expense of PKR 57 billion by NBP.

Provisioning charges (reversals) also spiked 39% in the last quarter, driven by stress in sectors like textiles and steel and the implementation of IFRS-9 accounting standards.

Another major hit came from taxes. The effective tax rate for banks stood at 56% in 4Q2024, up from 53% in the previous quarter. In total, the sector paid PKR 653.7 billion in taxes for 2024, marking a 12% increase as compared to the previous year.

Looking Ahead

Despite these challenges, banks maintained strong dividend payouts, with NBP making headlines by resuming dividends for the first time since 2016, announcing PKR 8 per share, its highest ever.

With interest rates now lower, banks are expected to shift focus towards non-funded income streams, with foreign exchange gains likely to remain a key contributor. However, higher costs and provisioning requirements could keep profitability under pressure in the near term.