Karachi, July 28, 2022 (PPI-OT): Commercial Banks – 2qCY22: Higher Taxes to Downscale Bottom Lines

For the 2qCy22, we expect sector earnings (IGI coverage banking universe) to post an earnings decline of 61%q/q (56%y/y), to PKR 22.5bn.

This is mainly due to higher taxation.

Apart from higher taxation, unfavourable market condition, particularly rising interest rates will affect banks’ long-term fixed rate bond holdings, over 3m treasury bills holding, and equity.

We may expect some revenue cushioning from Non-II specifically on FX income.

Profitability to take a major hit amid taxation measures

For the 2qCy22, we expect sector earnings (IGI coverage banking universe) to post an
earnings decline of 61%q/q (56%y/y), to PKR 22.5bn.

This is mainly due to higher taxation including, (a) 10% super tax (additional 6% introduced recently), (b) increased corporate tax of 39% (35% previously), and (c) higher tax rates on income arising government securities for banks having a lower ADR ratios.

Apart from higher taxation, unfavourable market condition, particularly rising interest rates will affect banks’ long-term fixed rate bond holdings, over 3m treasury bills holding, and equity. We may expect some revenue cushioning from Non-II specifically on FX income owing to healthy trade volumes and PKR volatility. On provision side, we do not see a major growth as yet on provision charge, with exception of MCB, ABL and FABL expected to show reversals.

For our coverage banks, UBL and MCB are likely to see a higher decline in earnings ((greater than) 80%q/q) mainly due to lower ADR ratios ((less than) 50%). Followed by ABL and AKBL, eps decline of 71% q/q and 76% q/q.