TC May-Jun 2022 Issue

TRADE CHRONICLE
May - Jun - 2022
Pakistan Banks’ profitability impacts
15-20% due to propose increased taxation
The government has introduced major
changes in Federal Budget FY23 for the
banking sector, which will significantly
impact the industry’s bottom line.
These changes include 1) an increase
in the corporate tax rate for banks,
2) an additional 2% tax on poverty
alleviation, and 3) an increase in the tax
rate on interest income on government
securities.
As per the Finance Bill, the corporate
tax rate has been increased from 35%
to 45% from the tax year 2023 and
onwards (CY2022 and forward), and
the super tax of 4% has been abolished.
Hence, the tax rate has increased
by 6%, from 39% to 45%, which will
impact earnings from 2022 onwards.
An additional 2% poverty alleviation
tax has been imposed on the banking
sector (banks with earnings of
Rs300mn and above) from the Tax
year 2022 onwards (CY2021 onwards)
as per 7CA of the Seventh Schedule of
Income Tax ordinance. Furthermore,
the tax rate on the interest income
from government securities with banks
NBP signs MoU with PTA
Pakistan
Telecommunication
Authority (PTA) and National Bank of
Pakistan have signed a Memorandum
of Understanding (MoU) for provision
of consumer financing facilities to
PTA employees. The MoU is aimed
as mutually beneficial for both
the organisation and it will further
strengthen NBP’s partnership with
PTA. NBP is capitalizing on its large
corporate relationships by offering
specialized priority services and
awareness sessions for the employees
of large corporates like PTA to meet
their personal banking/financing
needs and banking to employees’
workplace for facilitation and better
customer service.
Faisal Ahmed (SEVP & Group Head
– Consumer Assets Group, NBP) and
Muhammad Abdur Rub Khan (Director
– Payroll & Cash, PTA) along with other
senior executives of NBP and PTA were
having an ADR
of 50% or more
is increased from
35% to 45%.
For banks with ADR of 40-50%, the
rate has risen to 49% from 37.5%; for
banks with ADR of less than 40%, it is
increased to 55%. The Finance Bill also
clarifies that this tax will apply on total
income attributable to real investment
in government securities and not on
additional income.
Implementing the said tax rate
increase on a certain ADR threshold
will apply retrospectively from CY2021
onwards (Tax Year 2022 and forth). It
will likely lead to a higher effective tax
rate of around 53% in 2022 and will
settle down to ~48% in 2023.
Since the SBP amendment Act 2021,
the government has to rely mostly
on commercial bank borrowing to
finance its fiscal needs, resulting in
a rise in secondary market yields on
government securities. We believe
that to limit banks from taking undue
advantage of the given situation;
the government has imposed higher
taxation on banks, especially on the
interest income from government
also present to grace the occasion.
Both organisations will also pave the
way for bringing banking to employees’
workplace for facilitation and better
customer service. The arrangement
will further support access to banking
finance for PTA employees.
NBP is presently offering a wide range
of consumer financing products that
inter alia include “Personal Loans”,
“Financing against Gold”, “House
Loans” and “Auto Loans”. The bank
holds lion’s share in the category of
personal loans and is a prominent
player in the industry for provision of
low-cost housing.
securities.
The above-announced measures will
impact the sector’s profitability by
around 20% for 2022 and 15% for 2023.
Banks will now gradually try to shed
high-cost deposits and look to increase
exposure in advances to minimize the
impact of these measures. Banks may
also contest this huge increase in taxes
from relevant authorities.
After these measures, Topline Banking
Universe earnings are expected to grow
by 10% in 2022 and remain flat in 2023.
We maintain our ‘Overweight’ stance
on the banking sector as it trades at
attractive PE of 4.3x and PBV of 0.6x.
Courtesy - Topline Securities
JS Bank offers to open RDA
accounts via WhatsApp
JS Bank has
become 14th
bank to join
the State Bank
of Pakistan’s
Roshan Digital
A c c o u n t
(RDA) initiative, allowing Non-Resident
Pakistanis (NRPs) to open bank accounts
digitally, a statement said recently.
JS Bank is offering NRPs to open their
accounts via WhatsApp, enabling
unmatched convenience for users. This
is part of a multi-channel platform
approach, which includes JS mobile and
internet banking, the bank said. A launch
ceremony to mark the occasion was
held in Karachi. Governor (Acting) SBP
Murtaza Syed was prominent with his
presence along with founder JS Group
Jahangir Siddiqui, president and CEO
JS Bank Basir Shamsie, and business
community and corporate leaders.
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