Karachi, Pakistan's banking sector has seen a decrease in core income during the first quarter of 2024, marking the end of a 12-quarter growth streak. The drop in Net Interest Income (NII) is attributed to reduced asset yields while funding costs have remained stable. This quarter also noted a decline in operating expenses, the first since the second quarter of 2020.

According to JS Global, the downturn in the banking sector’s profitability is paired with an analysis of balance sheet indicators and ratios from 12 banks, representing 85% of the market cap. The report highlights that some banks have increased leverage to invest in higher-yielding assets in anticipation of a monetary easing cycle. Despite the challenges, most banks continued to see robust year-over-year deposit growth, with BAFL leading and FABL moving up in rankings.

The competitive environment is heating up, especially for the fifth spot in the "Top-5 Club," with BAHL making a significant return. The asset allocation within the sector has shifted towards safer government securities amid a high-interest rate environment and broader macroeconomic challenges. Under the IFRS 9 reporting standard, a new category for underperforming loans was introduced, showing an increased risk in the banking loan portfolio.

Additionally, the report discusses the variance in credit loss allowances among banks, some of which have adapted their strategies to mitigate impacts on their Net Interest Margins (NIMs) and overall core income. JS Global emphasizes the qualifications and independence of their analysts in producing this analysis, ensuring unbiased and thorough insights into the sector’s performance.