Karachi: Banks are poised to report a 12 percent decrease in quarterly profits, amounting to approximately PkR75.1 billion, as financial results for the first quarter of 2025 are announced. The expected decline is attributed to shrinking net interest margins (NIMs) and a drop in non-markup income, according to AKD Securities Limited.

Net Interest Income is forecasted to plummet by 14 percent, reaching PkR260 billion due to lower yields on investments and loan portfolios. As a result, the banking sector's NIMs are anticipated to fall to 4.29 percent in the first quarter from 5.13 percent in the last quarter of 2024. The secondary market has also experienced a downward trend, with yields for 3, 6, and 12-month papers dropping by 164, 137, and 113 basis points, respectively.

The decline in non-markup income, driven by a lack of capital gains, is expected to overshadow reduced non-markup expenses. Non-markup income is projected to decrease by 28 percent, settling at PkR73.4 billion, while expenses in this category are anticipated to drop by 8 percent. The quarter will also see HBL facing a windfall tax of PkR4.9 billion related to forex gains from previous years.

A lower tax burden, following the enactment of an additional 5 percent tax at the end of the previous year, is expected to slightly offset the negative impact on profitability. The full effect of this tax was previously accounted for in the last quarter of 2024.

Despite the anticipated drop in profitability, banks are expected to maintain dividend payouts. This resilience is attributed to strong capitalization, recovery in macroeconomic variables, and the removal of mandated ADR-based taxation in the previous quarter. The industry’s Capital Adequacy Ratio (CAR) remained robust, exceeding 20 percent as of December 2024.

AKD Securities Limited has identified MEBL, MCB, and HBL as top picks in the sector, with projected target prices for December 2025 of PkR356, PkR398, and PkR258 per share, respectively.