Karachi: Pakistan's listed banks reported a 4% decline in profitability on a quarter-on-quarter basis during the second quarter of 2026, with net interest income falling by 2%, according to a recent press release. The banks recorded a total profitability of Rs168 billion in the quarter, maintaining a flat year-on-year performance, and bringing the first half of 2026 earnings to Rs342 billion, unchanged from the previous year.
According to JS Global, the decline in quarterly earnings was influenced by a 7% increase in non-interest expenses, reaching Rs361 billion, and a 2% drop in net interest income (NII) to Rs527 billion. This was partially mitigated by a 4% rise in non-interest income, which grew to Rs177 billion. The decline in NII reflects the delayed impact of an interest rate hike in April 2026, although banks' focus on current account deposits and growth in volume provided some relief. Notably, JS Bank, Bank of Punjab, Bank Alfalah, and Askari Bank reported NII growth between 6% and 24% year-on-year, whereas Samba Bank, Soneri Bank, National Bank, and Habib Metropolitan Bank experienced declines ranging from 16% to 31% year-on-year.
Non-interest income saw a substantial increase of 23% year-on-year, attributed to higher foreign exchange income. Askari Bank, United Bank, Bank AL Habib, and MCB Bank posted significant year-on-year growth in non-interest income, with increases of 128%, 87%, 49%, and 29% respectively.
The banks also faced rising non-interest expenses, which increased by 15% year-on-year and 7% quarter-on-quarter. This escalation was largely due to branch expansion and inflation-related staff costs, as reflected in the sector's cost-to-income ratio, which climbed to 51.3% from 48.0% in the previous quarter and 45.9% in the second quarter of 2025. Askari Bank, United Bank, Meezan Bank, and Bank AL Habib recorded the highest cost growth, ranging from 20% to 41% year-on-year.
Provision reversals amounted to Rs6.2 billion for the quarter, compared to Rs8.0 billion in the same period last year and Rs1.8 billion in the first quarter of 2026, primarily due to a Rs3.8 billion reversal by United Bank. Excluding this, the sector's reversal stood at Rs2.4 billion.
The effective tax rate for the quarter was recorded at 52.5%, a slight decrease from 55.8% in the second quarter of 2025 and 52.4% in the first quarter of 2026.
On a bank-wise basis, United Bank led the sector with earnings of Rs37.5 billion in the second quarter of 2026. Meezan Bank followed with earnings of Rs26.2 billion, while Habib Bank, National Bank, and MCB Bank reported earnings of Rs18.4 billion, Rs16.6 billion, and Rs15.0 billion respectively. In terms of earnings growth, JS Bank posted the highest increase at 704% year-on-year, followed by Askari Bank at 91%, United Bank at 31%, and Bank Alfalah at 27%. On the downside, Bank of Khyber, Standard Chartered, Habib Metropolitan Bank, and National Bank reported declines in earnings between 21% and 74% year-on-year, with Bank Makramah posting a loss of Rs3.9 billion.
Most banks maintained their quarterly dividend payouts, with Meezan Bank increasing its dividend to Rs8.0 per share. MCB announced a dividend of Rs9.0 per share, United Bank Rs8.0 per share, and Habib Bank Rs6.0 per share, among others.
The Topline Banking Universe is trading at a projected 2026 price-to-earnings ratio and price-to-book value of 8.1x and 1.5x respectively, with a return on equity of 19%. The sector holds a 'market weight' stance, with Meezan Bank and United Bank as top picks.