Karachi, Despite experiencing a decline in profits during the first quarter of 2024, Pakistani banks are expected to maintain their dividend payouts. As per the latest forecasts by JS Research, banks under its coverage are anticipated to report a significant 13% quarter-over-quarter drop in Net Interest Income (NII) due to decreasing asset yields and static funding costs. This marks the first sequential drop in core income since the second quarter of 2021. Simultaneously, a rise in the Cost to Income ratio from 38% to 45% is predicted, reminiscent of the levels seen in mid-2022, driven by persistent inflationary pressures and increased operating expenses.

According to JS Global, while the bottom line is expected to decline by 17% compared to the previous quarter, the banks’ capital adequacy remains robust with a CET-I buffer comfortably over the required levels. This financial cushion is expected to shield dividend strategies despite the dip in profitability. The report further notes that tax pressures remain significant, with a standard corporate tax rate of 39% coupled with a Super Tax of 10%, keeping the effective tax rate around 49%. Furthermore, adjustments due to the penal tax on lower Advance to Deposit Ratios (ADR), affecting major banks like UBL and MCB, are also accounted for with projected additional tax impacts ranging between 4% to 9%.

Despite these challenges, dividends are likely to be unaffected, providing a stable return to shareholders amid varying market conditions. The report also highlights potential excitement around banks like BAFL and HMB, which may transition from semi-annual to quarterly dividends, potentially increasing payout frequency.