Islamabad: Banks Profitability has touched new highs. The profitability of Pakistan’s listed banking sector surged to Rs173 billion during the first quarter of 2025 (January to March), marking a 14 percent year-on-year (YoY) increase and a 12 percent rise compared to the previous quarter.
This growth comes despite a drop in interest rates, highlighting the resilience and operational efficiency of the banking industry.
Net interest income (NII) for the sector reached Rs536 billion in 1Q2025, reflecting a 23 percent increase YoY and a 2 percent uptick quarter-on-quarter (QoQ).
This rise was supported by a combination of higher transaction volumes, beneficial repricing of assets, and improved returns from repo-based borrowing activities.
Banks Profitability & Interest Incomes
In contrast, total interest income experienced a decline of 19 percent YoY and 13 percent QoQ, settling at Rs1.4 trillion. Interest expenses saw a sharper drop, falling 32 percent YoY and 20 percent QoQ to Rs0.9 trillion, indicating better cost control in liabilities.
The sector’s non-interest income also grew, albeit at a slower pace—recording a 6 percent YoY rise to Rs133 billion.
However, it fell 28 percent QoQ, largely due to reduced earnings from capital gains and fee-based services during the quarter.
On the expenditure side, non-interest costs rose 19 percent YoY to Rs293 billion, attributed mainly to inflationary pressures and expansion of branch networks.
Nonetheless, these expenses declined by 19 percent compared to the previous quarter.
The sequential reduction was primarily due to the absence of a one-off pension liability incurred by the National Bank of Pakistan (NBP) in the final quarter of 2024.
As a result of these movements, the sector maintained a cost-to-income ratio of 44 percent in 1Q2025—unchanged from the same period in the previous year, and notably lower than the 51 percent recorded in the last quarter of 2024.
This indicates a consistent improvement in operational efficiency.
Provisioning expenses, which banks set aside to cover potential loan losses, totaled Rs6 billion during the quarter. This figure represents a 36 percent YoY drop and a steep 83 percent decline QoQ.
The significant reduction is attributed to enhanced asset quality and the implementation of the IFRS-9 accounting standard, which has helped streamline provisioning practices, according to internal industry insights.
On the taxation front, the effective tax rate for listed banks was recorded at 53 percent for the quarter, compared to 50 percent in the same period last year and 56 percent in the preceding quarter.
Read More: Meezan Bank Sets All-Time Profit Record in 2024
It is noteworthy that at the close of 2024, the government eliminated the tax linked to the Advances-to-Deposits Ratio (ADR), but simultaneously increased the overall tax burden.
This pushed the effective tax rate—including super tax—from 49 percent in 2024 to 53 percent for the calendar year 2025.
Overall, the strong profitability figures suggest that the listed banking sector has successfully adapted to recent economic and regulatory changes, managing to expand its income base while containing costs and provisions.
Also Read: Bank of Punjab Posts Rs4 Billion Pre-Tax Profit
The performance underscores continued investor confidence in the sector’s long-term fundamentals.
