The 9MCY22 banking earning season has been a stellar one for the big 5 banks, on pretax profit grounds. The big five (HBL, NBP, UBL, ABL, MCB) commercial banks saw the pretax profits soar 28 percent year-on-year, on a cumulative basis. The imposition of super tax with retrospect meant the after-tax profits were significantly down year-on-year, as the effective tax rate averaged 61 percent for the big-five, versus 41 percent in the same period last year.

The topline understandably grew at a brisk rate, largely owing to significantly higher average interest rates during the period, and partly to, volumetric expansion. The asset base of the top-five banks expanded 12 percent over December 2021, with bulk of the growth expectedly coming from investment portfolio.

The investment to deposit ratio increased from 68 percent in December 2021 to an all-time high 77 percent by the end of September 2022. Investments grew 20 percent over December 2021, nearing Rs9 trillion – the markup on which also constitutes the lion’s share of the markup earnings. The investment portfolio composition significantly altered in line with changing interest rate dynamics – as banks focused more on floating PIBs, in complete contrast to a year ago, when fixed PIBs were the preferred parking lot.

The advances growth at 8 percent was well in-line with changing macroeconomic realities, as businesses reassess the borrowing requirements in the high inflation, low growth scenario for FY23. The ADR stayed flat at 42 percent, with most banks aiming for higher ADR by the year end. Infection ratio was managed well, and adequately provided for, across the board.

The non-core income grew in double-digits, and the streams have been well spread out, with fee, commission, gain on sale, dividend income, and foreign exchange income all making sizeable contributions. Continuous branch expansion and technology investment in addition to general inflationary trend, took the administrative costs higher– leading to static cost-to-income ratio year-on-year.

Deposits growth has been rather steady without being extraordinary at 7 percent, much in line with overall industry trend. Most of it has been channeled in the low cost or non-remunerative deposits. The CASA ratio of the big 5 has been on a constant rise, from an already high base, which comes handy when things go tough. The soundness indicators ring no alarm, as all big banks sit pretty on most risk indicators. FY23 is going to be a tough year in terms of advances growth, but the government’s appetite to borrow remains high – and that should keep the banks going.