Banks See 14% Profit Drop in 2Q2025 Amid Challenges

Islamabad, July 11, 2025, 05:49 PM PKT — Pakistan’s banking sector braces for a modest 2QCY25 performance, with major banks facing a 1% year-on-year (YoY) profitability decline and a staggering 14% quarter-on-quarter (QoQ) drop, per data from Insight Securities and Topline Securities, triggered by falling yields and a 100-basis-point policy rate cut by the State Bank of Pakistan (SBP) in May. Key banks—HBL, UBL, MCB Bank, Meezan Bank, and Bank Alfalah—are hit by shrinking net interest margins (NIMs) and reduced capital gains, with non-markup income also dipping as gains normalize. Yet, volumetric growth, zero-cost deposits, and strong capital buffers may bolster earnings, alongside healthy dividends.

Earnings per share (EPS) estimates are: HBL Rs9.5, UBL Rs11.3, MCB Bank Rs9.9, Meezan Bank Rs11.4, and Bank Alfalah Rs4.9, with dividend per share (DPS) at Rs4.5, Rs7, Rs9, Rs7, and Rs2.5 respectively—UBL leading with robust earnings and deposit growth. Sector deposits soar to Rs35 trillion (+12.5% YoY, 10.7% QoQ), but advances drop 4.1% QoQ to Rs12.9 trillion, slashing the advances-to-deposit ratio (ADR) by 570 bps. Investments rise 12.8% QoQ to Rs36.5 trillion, favoring government securities, while provisioning expenses climb, reversing prior reversals tied to ADR targets.

Topline Securities forecasts a 7% YoY earnings growth for covered banks, driven by net interest income (NII) up 12% YoY to Rs303 billion and non-interest income up 14% YoY to Rs84 billion, despite the policy rate fall from 21.5% to 11.3%. UBL eyes a 148% YoY earnings surge, HBL a 4% rise, but sector earnings may dip 5% QoQ due to lower NII and higher provisions. 1H2025 earnings hit Rs210 billion (+10% YoY), with UBL’s DPS rising to Rs8 from Rs5.5. The price-to-book (P/B) ratio rebounds to 1.24 times by June 2025, signaling renewed investor confidence amid improved profitability.

Web context confirms profitability shifts (e.g., 14% QoQ decline estimates), while posts found on X show mixed sentiment—some note dividend strength, others worry about margin pressures. Critically, the narrative of “modest performance” may mask underlying vulnerabilities—web data suggests provisioning risks, and X sentiment hints at distrust in sustained growth, pointing to potential volatility.