Islamabad, Jan 16: The banking sector is expected to experience a 10% year-on-year (YoY) and 24% quarter-on-quarter (QoQ) decline in earnings for the fourth quarter of 2024.
This comes as a result of a higher effective tax rate, despite the government’s decision to eliminate the additional tax of 10-16% on banks with low Advances-to-Deposits Ratios (ADR).
The standard income tax rate for banks, however, has been increased from 49% to 54%, including a 10% super tax, adding to the sector’s fiscal pressures.
Despite this earnings decline, the sector is projected to show a profit before tax (PBT) growth of 9% YoY, primarily fueled by an increase in Net Interest Income (NII) and Non-Interest Income.
For the full year, analysts anticipate total earnings to reach Rs. 371 billion, an 11% YoY growth, while PBT is expected to surge by 18% YoY to Rs. 806 billion. This growth underscores the sector’s resilience amidst a challenging fiscal environment.
Top Performers and Dividend Outlook
Among individual banks, Meezan Bank (MEBL) is poised to lead with an impressive 21% YoY growth in earnings for 2024. United Bank (UBL) follows closely with a projected 20% growth, while Bank Alfalah (BAFL) is expected to post a 15% YoY increase. These banks have leveraged strong operational strategies and robust customer bases to achieve superior performance.
The sector’s strong profitability and well-maintained capital buffers above regulatory requirements are expected to support generous dividend payouts for shareholders. Banks with sound fundamentals and growth prospects, such as Meezan Bank (MEBL) and Habib Bank (HBL), are likely to continue rewarding investors, reinforcing their appeal in a competitive market.
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Market Position and Outlook
The overall stance on the banking sector remains cautious but optimistic, with a market weight recommendation. While challenges such as increased taxation weigh on short-term profitability, the sector’s focus on enhancing operational efficiency, diversifying income streams, and maintaining financial stability positions it well for sustained growth in the long run.
As the financial landscape evolves, banks are likely to explore new avenues for growth, capitalizing on advancements in digital banking, customer-centric products, and improved risk management practices to navigate economic uncertainties and deliver value to stakeholders.
