LAHORE - Profitability of the banking sector remained largely flat led by lower Net Interest Income (NII) and Net Interest Margins (NIMs).

NII of the sector was down 2 percent to Rs428b mainly on the back of retirement of significant chunk of high yielding PIBs and lower interest rates. Contraction in margin, however, was somewhat compensated by volumetric deposit growth which were up by 14 percent, slightly higher than expectations.

Along with lower NII, non-interest income of the sector was also down 3 percent to Rs180b mainly driven by lower capital gains. Capital gains booked against bonds and equities by the banks dropped by 9pc to Rs48b due to high base effect. Non-interest expense also increased by 8pc to Rs319b, limiting bottom-line of the sector. It, however, remained lower than historical average.

Total provisions of the sector saw a sharp decline, reducing to Rs2.3 billion down from Rs34 billion in the previous year. This was largely driven by major recoveries of non-performing loans amid improving macros. Amongst top five banks, NBP posted highest profit growth of 15 percent followed by UBL that posted growth of 6 percent. NBP’s earnings were supported by sharp recovery in provisions reversals against NPLs as provisions stood at Rs708m in 2016 as compared to Rs10.8b in the same period of last year.