Karachi: Pakistan's listed banks reported a mixed performance in 2025, with overall profitability increasing by 3% year-over-year while experiencing a 6% decline quarter-over-quarter in the fourth quarter, according to JS Global. The sector's net interest income (NII) rose by 2% year-over-year to Rs532 billion, driven by volumetric growth and favorable repricing, despite a reduction in interest rates.
Non-interest income saw a 20% year-over-year decline, remaining steady quarter-over-quarter at Rs147 billion, largely due to reduced capital gains on investments. Non-interest expenses decreased by 8%, attributed to a one-off cost recorded by National Bank of Pakistan (NBP) in the final quarter of 2024. The banking sector also benefited from a provision reversal of Rs5.7 billion in the fourth quarter of 2025, compared to a Rs35 billion charge in the same period of the previous year, with Bank Makramah recording a significant reversal of Rs15 billion.
The effective tax rate for the fourth quarter of 2025 stood at 53.5%, slightly lower than the 55.7% recorded in the same quarter of 2024, following government adjustments to tax regulations. For the entire year, bank profitability increased by 11% year-over-year to Rs666 billion, primarily driven by a 12% rise in NII to Rs2.1 trillion and a reversal in provisions compared to the previous year.
United Bank Limited (UBL) led the sector with earnings of Rs130 billion in 2025, followed by Meezan Bank (MEBL), National Bank (NBP), Habib Bank Limited (HBL), and MCB Bank (MCB). UBL also recorded the highest NII growth at 104% year-over-year, while Bank of Punjab (BOP) achieved the highest growth for the fourth quarter at 59% year-over-year.
Many banks maintained or increased their dividend payouts, with NBP announcing its highest-ever dividend of Rs35.0 per share. The banking universe is currently trading at a projected 2026 price-to-earnings ratio of 7.9 and a price-to-book value of 1.7, with a return on equity of 23%. JS Global maintains a 'market weight' stance on the banking sector, naming Meezan Bank and Habib Bank Limited as top picks.