Despite the drop in Net Interest Income (NII), Pakistan's banking sector posted profits of Rs70 billion in the second quarter of the calendar year (April-June 2021), according to a report by a brokerage house.

The higher earnings come on the back of lower provisioning, added Topline Securities in its report released on Monday.

The report reviewed Pakistan banks' profitability for the 2Q2021, which includes a sample of 18 listed banks that have announced their financial results (out of a total listed 20 banks), representing 98% of the banking sector's capitalisation at the PSX.

As per the report, NII during 2Q2021 stood at Rs195bn (down 10% YoY) as interest income on earning assets was down by 13% YoY to Rs412bn, whereas interest expense on interest-bearing liabilities was down by 16% to Rs217bn.

The brokerage house said profitability was supported by lower provisions, which declined by 77% YoY to Rs10bn in 2Q2021 as asset quality of the banks remained strong despite concerns over the potential uptick in NPls (Non-Performing loans) amid the Covid-19 pandemic.

Non-interest income of the banks remained largely unchanged, clocking in at Rs61 billion, down 2% YoY in 2Q2021 whereas non-markup expenses of the banks were up by 8% YoY to Rs130 billion -- in line with its historical trend.

Cost to income of the sector increased to 51% in 2Q2021 versus 43% last year as NII and non-markup income remained on the lower side.

On a sequential basis, the profitability of the banking sector was up 8% QoQ driven by increase in NII by 8% QoQ, whereas during 1H2021, profits were up 13% YoY on strong deposit growth, rising non-interest income, and lower provisioning, added the report.