Moody’s notes strong bank profits in 2020

Published February 26, 2021
A significant increase in gains on securities to Rs14bn from losses of Rs65 million in 2019 also supported the three banks’ bottom-line profitability. — AFP/File
A significant increase in gains on securities to Rs14bn from losses of Rs65 million in 2019 also supported the three banks’ bottom-line profitability. — AFP/File

ISLAMABAD: Moody’s Investor Services on Thursday said that despite lower interest margins, higher provisioning for non-performing loans amid the pandemic, leading Pakistani banks post strong profit growth in 2020.

In a statement, the Moody’s said the financial results announced by three leading banks – MCB, Allied and Habib Bank – as of Feb 22 were credit positive and reflect containment of the pandemic’s adverse effects. “However, we expect pressure on 2021 profitability amid narrower net interest margins and ongoing asset quality deterioration,” it said.

As of Feb 22, three large banks reported their 2020 results, with MCB Bank Ltd (B3 stable, b31), Allied Bank Ltd (B3 stable, b3) and Habib Bank Ltd (B3 stable, caa1) each reporting higher profitability and capital buffers than in 2019, and robust liquidity.

Profitability for MCB Bank in 2020 increased 23pc to Rs29.6bn, translating to a return on assets (ROA) of 1.6pc while Allied Bank’s profitability rose 27pc to Rs18.4bn for an ROA of 1.2pc and Habib Bank’s profitability rose 99pc to Rs30.9bn for an ROA of 0.8pc.

These results reflect robust net interest income and strong balance-sheet growth facilitated by increased deposits and good treasury positioning, despite a cumulative 625-basis-point cut in interest rates since July 2019. A significant increase in gains on securities to Rs14bn from losses of Rs65 million in 2019 also supported the three banks’ bottom-line profitability.

Growth in income more than compensated for MCB’s provisioning charge increase to Rs7.3bn from Rs2.7bn in 2019, and Habib Bank’s increase to Rs12.2bn (including Rs6.4bn of general provisions) from Rs3.3bn over the same period. Allied Bank’s provisioning charge only marginally increased to Rs844m from Rs547m, partly reflecting its best-in-class asset quality, with nonperforming loans (NPLs) accounting for 2.8pc of gross loans.

MCB Bank reported an NPL ratio of 10pc, up from 9.2pc in 2019, while Habib Bank’s NPL ratio fell to 6.3pc from 6.6pc in 2019.

For 2021, it expected profitability to remain at 2020 levels mainly because of a squeeze in net interest margins after the interest rate cuts. This was not visible during 2020 because Pakistani banks held a high proportion of Pakistani investment bonds (PIBs) purchased in previous years and they carry high yields that protected margins from the interest rate cut.

Published in Dawn, February 26th, 2021

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