{"id":9216,"date":"2025-05-20T12:46:59","date_gmt":"2025-05-20T07:46:59","guid":{"rendered":"https:\/\/ksestocks.com\/blog\/?p=9216"},"modified":"2025-05-20T12:47:02","modified_gmt":"2025-05-20T07:47:02","slug":"with-19-roe-are-pakistani-banks-too-cheap-to-ignore","status":"publish","type":"post","link":"https:\/\/ksestocks.com\/blog\/with-19-roe-are-pakistani-banks-too-cheap-to-ignore\/","title":{"rendered":"With 19% ROE, are Pakistani banks too cheap to ignore?"},"content":{"rendered":"\n<h2 class=\"wp-block-heading\">Investor takeaways:<\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Profit up 14% YoY<\/strong> despite interest rate cuts; total profit after tax clocked in at <strong>Rs173bn<\/strong><\/li>\n\n\n\n<li><strong>Net Interest Income (NII) grew 23% YoY<\/strong> to <strong>Rs536bn<\/strong>, supported by better volumes, repricing, and repo yields<\/li>\n\n\n\n<li><strong>Non-interest income rose 6% YoY<\/strong> but declined 28% QoQ due to lower capital gains and fee income<\/li>\n\n\n\n<li><strong>Provisions dropped 36% YoY<\/strong>, reflecting <strong>improved asset quality and IFRS-9 implementation<\/strong><\/li>\n\n\n\n<li><strong>Cost-to-Income ratio stable<\/strong> at 44%; non-interest expense increased YoY due to inflation and expansion<\/li>\n\n\n\n<li><strong>UBL and NBP led earnings<\/strong>; only Bank Makramah reported a loss<\/li>\n\n\n\n<li><strong>Banking sector trades at attractive valuations<\/strong> \u2013 2025E PE of 5.9x, PBV of 1.1x, and ROE of 19%<\/li>\n\n\n\n<li><strong>Top picks: Meezan Bank (MEBL) and Habib Bank (HBL)<\/strong><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Banks defy rate cuts with double-digit profit growth in 1Q2025<\/h2>\n\n\n\n<p>Pakistan\u2019s 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.<\/p>\n\n\n\n<p>Even as <strong>interest income fell 19% YoY<\/strong> to Rs1.4 trillion, banks benefited from a sharper <strong>32% decline in interest expenses<\/strong>, which dropped to Rs0.9 trillion. As a result, NII expanded to Rs536 billion.<\/p>\n\n\n\n<p>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.<\/p>\n\n\n\n<p>Provisions saw a steep decline of <strong>36% YoY and 83% QoQ<\/strong>, reflecting <strong>improved asset quality<\/strong> and the absence of one-off impairments. This significantly boosted pre-tax profits, which rose 21% YoY to Rs371 billion.<\/p>\n\n\n\n<p>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.<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/ksestocks.com\/blog\/tag\/ubl\/\" target=\"_blank\" rel=\"noopener\" title=\"UBL\">UBL <\/a>topped the charts with Rs36.1bn in profits<\/strong>, followed by Meezan Bank (Rs22.4bn), <strong><a href=\"https:\/\/ksestocks.com\/blog\/tag\/nbp\/\" target=\"_blank\" rel=\"noopener\" title=\"NBP\">NBP <\/a><\/strong>(Rs22.1bn), <strong><a href=\"https:\/\/ksestocks.com\/blog\/tag\/hbl\/\" target=\"_blank\" rel=\"noopener\" title=\"HBL\">HBL <\/a><\/strong>(Rs16.6bn), and <strong><a href=\"https:\/\/ksestocks.com\/blog\/tag\/mcb\/\" target=\"_blank\" rel=\"noopener\" title=\"MCB\">MCB <\/a><\/strong>(Rs14.7bn). Only Bank Makramah posted a loss of Rs0.9bn.<\/p>\n\n\n\n<p>In terms of NII growth, UBL led the pack with a 200% YoY increase, followed by NBP (139%), <strong><a href=\"https:\/\/ksestocks.com\/blog\/tag\/bop\/\" target=\"_blank\" rel=\"noopener\" title=\"BOP\">BOP <\/a><\/strong>(75%), <strong><a href=\"https:\/\/ksestocks.com\/blog\/tag\/akbl\/\" target=\"_blank\" rel=\"noopener\" title=\"AKBL\">AKBL <\/a><\/strong>(70%), and <strong><a href=\"https:\/\/ksestocks.com\/blog\/tag\/bok\/\" target=\"_blank\" rel=\"noopener\" title=\"BOK\">BOK <\/a><\/strong>(45%).<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Outlook and valuation<\/h2>\n\n\n\n<p>The sector remains attractively priced, trading at <strong>5.9x 2025E PE<\/strong> and <strong>1.1x PBV<\/strong>, with an expected <strong>ROE of 19%<\/strong>. Dividend payouts were largely sustained in 1Q2025, and we expect this trend to continue.<\/p>\n\n\n\n<p>Topline Securities (Private) Limited retains a <strong>market-weight<\/strong> view on the banking sector, with <strong>Meezan Bank and HBL<\/strong> as their preferred picks due to earnings resilience and strong franchise positions.<\/p>\n\n\n\n<p><strong>Source: Topline Securities (Private) Limited<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Pakistan\u2019s 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.<\/p>\n","protected":false},"author":9252,"featured_media":9295,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[154,343],"tags":[379,249,118,73,61,28,113,181],"class_list":["post-9216","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","category-sector-analysis","tag-akbl","tag-bok","tag-bop","tag-hbl","tag-mcb","tag-mebl","tag-nbp","tag-ubl"],"featured_image_src":{"landsacpe":["https:\/\/ksestocks.com\/blog\/wp-content\/uploads\/2025\/05\/Top-X-Stocks-1140x445.jpg",1140,445,true],"list":["https:\/\/ksestocks.com\/blog\/wp-content\/uploads\/2025\/05\/Top-X-Stocks-463x348.jpg",463,348,true],"medium":["https:\/\/ksestocks.com\/blog\/wp-content\/uploads\/2025\/05\/Top-X-Stocks-300x188.jpg",300,188,true],"full":["https:\/\/ksestocks.com\/blog\/wp-content\/uploads\/2025\/05\/Top-X-Stocks.jpg",1920,1200,false]},"_links":{"self":[{"href":"https:\/\/ksestocks.com\/blog\/wp-json\/wp\/v2\/posts\/9216","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ksestocks.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ksestocks.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ksestocks.com\/blog\/wp-json\/wp\/v2\/users\/9252"}],"replies":[{"embeddable":true,"href":"https:\/\/ksestocks.com\/blog\/wp-json\/wp\/v2\/comments?post=9216"}],"version-history":[{"count":1,"href":"https:\/\/ksestocks.com\/blog\/wp-json\/wp\/v2\/posts\/9216\/revisions"}],"predecessor-version":[{"id":9296,"href":"https:\/\/ksestocks.com\/blog\/wp-json\/wp\/v2\/posts\/9216\/revisions\/9296"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ksestocks.com\/blog\/wp-json\/wp\/v2\/media\/9295"}],"wp:attachment":[{"href":"https:\/\/ksestocks.com\/blog\/wp-json\/wp\/v2\/media?parent=9216"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ksestocks.com\/blog\/wp-json\/wp\/v2\/categories?post=9216"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ksestocks.com\/blog\/wp-json\/wp\/v2\/tags?post=9216"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}