Banks are anticipated to report a substantial 72 percent year-over-year (YoY) earnings growth in the fourth quarter of 2023, primarily fueled by a surge in Net Interest Income (NII).
As per Topline Securities, the NII for banks within its portfolio is expected to witness a 61 percent YoY increase, reaching Rs. 324 billion in 4Q2023, propelled by an upswing in asset yields. The 6-month Kibor/T-Bill/PIB rates have escalated to 21.88 percent/21.68 percent/17.26 percent, respectively, marking an increase of approximately 300-550 basis points YoY in 4Q2023.
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Profit Growth In 2023, the Topline Bank Universe is poised to achieve a profit of Rs. 350 billion, reflecting a notable 94 percent YoY surge, driven by a substantial 600 basis points rise in interest rates (from 16 percent to 22 percent). The anticipated effective tax rate for the universe in 2023 is 50 percent, as opposed to 52 percent in 2022.
Despite the absence of a quarter-over-quarter (QoQ) increase in interest rates, NII is projected to climb by 16 percent QoQ, primarily attributed to the repricing of assets, which experiences a time lag.
Non-Interest Income for the Topline Universe is expected to exhibit a 15 percent YoY and 21 percent QoQ growth in 4Q2023, likely influenced by higher inflation, with a significant contribution anticipated from fee and commission income.
Total provisions for the Topline universe in 4Q2023 are expected to reach Rs. 7 billion, compared to Rs. 31.5 billion in 4Q2022 and a provision reversal of Rs. 3.1 billion in 3Q2023. It is worth noting that in 4Q2022, many banks recorded higher provisions due to the Pakistan Eurobonds.