Karachi: Earnings for Pakistan's banking sector are projected to decrease by 6% quarter-on-quarter in the third quarter of 2026, driven by a decline in non-interest income. According to JS Global, this decline is attributed to lower capital gains and foreign exchange income. On a year-on-year basis, the Topline Banking Universe is expected to report a 1% decline in earnings, primarily due to increased operating expenses.
Non-interest expenses are anticipated to rise by 14% year-on-year to Rs251 billion in the third quarter of 2026. This increase is mainly associated with higher marketing costs, expanded compensation expenses connected to branch expansion at select banks, and a one-time adjustment at the National Bank of Pakistan (NBP). The NBP’s operating expenses are expected to surge due to an additional Rs6 billion cost related to a pension case, leading to a 38% year-on-year decline in its earnings.
Net interest income for the banking sector is forecasted to rise by 5% year-on-year to Rs413 billion, supported by volumetric expansion. On a quarterly basis, net interest income is expected to increase by 7%, driven by repricing movements. Meanwhile, non-interest income is projected to grow by 4% year-on-year but decline by 25% quarter-on-quarter, reflecting reduced capital gains compared to the previous quarter.
Total provision expenses are expected to reach Rs1.1 billion in the third quarter of 2026, contrasting with a reversal of Rs1.0 billion in the same quarter of the previous year and a reversal of Rs3.1 billion in the second quarter of 2026. The effective tax rate is anticipated to be 52%, slightly lower than the 53% recorded in the third quarter of 2025.
Despite these challenges, banks are expected to maintain comfortable capital buffers above minimum adequacy requirements, allowing them to sustain quarterly payout levels in the third quarter of 2026. However, some erosion in revaluation reserves is expected compared to the second quarter of 2026, as secondary market yields increased during the period. The repricing impact of Pakistan Investment Bonds (PIB) floaters is expected to mitigate this impact.