With 19% ROE, are Pakistani banks too cheap to ignore?

Investor takeaways:

• Profit up 14% YoY despite interest rate cuts; total profit after tax clocked in at Rs173bn
• Net Interest Income (NII) grew 23% YoY to Rs536bn, supported by better volumes, repricing, and repo yields
• Non-interest income rose 6% YoY but declined 28% QoQ due to lower capital gains and fee income
• Provisions dropped 36% YoY, reflecting improved asset quality and IFRS-9 implementation
• Cost-to-Income ratio stable at 44%; non-interest expense increased YoY due to inflation and expansion
• UBL and NBP led earnings; only Bank Makramah reported a loss
• Banking sector trades at attractive valuations – 2025E PE of 5.9x, PBV of 1.1x, and ROE of 19%
• Top picks: Meezan Bank (MEBL) and Habib Bank (HBL)

Banks defy rate cuts with double-digit profit growth in 1Q2025

Pakistan’s listed banks delivered strong earnings growth in the first quarter of 2025, defying the headwinds of declining interest rates. Profit after tax rose 14% YoY to Rs173 billion, led by a substantial 23% YoY increase in net interest income (NII). This improvement was driven by favorable asset repricing, volumetric growth, and higher returns on repo borrowings.

Even as interest income fell 19% YoY to Rs1.4 trillion, banks benefited from a sharper 32% decline in interest expenses, which dropped to Rs0.9 trillion. As a result, NII expanded to Rs536 billion.

Non-interest income grew a modest 6% YoY to Rs133 billion but dropped 28% QoQ, mainly due to lower capital gains and fees. Meanwhile, non-interest expense rose 19% YoY to Rs293 billion, attributed to inflation and branch expansions. The QoQ drop in expenses (-19%) was due to the absence of one-time pension costs recorded by NBP in the previous quarter.

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Provisions saw a steep decline of 36% YoY and 83% QoQ, reflecting improved asset quality and the absence of one-off impairments. This significantly boosted pre-tax profits, which rose 21% YoY to Rs371 billion.

The effective tax rate increased to 53% (vs. 50% last year) after the removal of the ADR-related tax and the imposition of a higher standard tax rate in 2025.

UBL topped the charts with Rs36.1bn in profits, followed by Meezan Bank (Rs22.4bn), NBP (Rs22.1bn), HBL (Rs16.6bn), and MCB (Rs14.7bn). Only Bank Makramah posted a loss of Rs0.9bn.

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In terms of NII growth, UBL led the pack with a 200% YoY increase, followed by NBP (139%), BOP (75%), AKBL (70%), and BOK (45%).

Outlook and valuation

The sector remains attractively priced, trading at 5.9x 2025E PE and 1.1x PBV, with an expected ROE of 19%. Dividend payouts were largely sustained in 1Q2025, and we expect this trend to continue.

Topline Securities (Private) Limited retains a market-weight view on the banking sector, with Meezan Bank and HBL as their preferred picks due to earnings resilience and strong franchise positions.

Source: Topline Securities (Private) Limited

⚠️ This post reflects the author’s personal opinion and is for informational purposes only. It does not constitute financial advice. Investing involves risk and should be done independently. Read full disclaimer →