Pakistan’s listed banks are on track to report a second quarter 2026 profit after tax of roughly Rs. 121.9 billion, down 10 percent from the Rs. 135.5 billion they booked just three months earlier. The estimate comes from Topline Securities, a Karachi based brokerage house whose earnings previews are a standard reference for investors heading into results season.
The more telling number sits further down the note. Provision expenses are set to jump 6.5 times from the first quarter to Rs. 8.5 billion, a sharp reversal from the Rs. 1.3 billion in reversals banks booked in the same quarter last year. That swing lands in the same quarter Pakistan’s central bank delivered its first interest rate hike in three years.
Profit After Tax Set to Slide to Rs. 121.9 Billion
On a yearly basis the drop looks smaller, just 1 percent, because the year ago quarter was not inflated by unusual trading gains. Topline attributes the year on year dip to higher operating expenses and the return of provision charges, compared with reversals recorded in the same period last year.
Profit before tax tells a similar story. Topline projects it will fall 10 percent year on year and 11 percent quarter on quarter to Rs. 254.2 billion. A lower effective tax rate of 52 percent will cushion some of that decline, though it remains one of the heavier effective rates Pakistani banks have carried in recent years.
Pakistan’s Two Year Rate Cutting Cycle Just Reversed
The provisioning swing did not happen in isolation. It arrived just as the State Bank of Pakistan’s policy stance flipped from cuts to a hike, ending nearly two years of easing that had been the biggest single tailwind behind the sector’s earnings.
- December 15, 2025: the SBP cut its policy rate by 50 basis points to 10.5 percent, extending a cutting cycle that had by then trimmed 1,150 basis points of cuts in under two years.
- March 9, 2026: the SBP held the rate at 10.5 percent, pausing the cutting cycle as a deteriorating Middle East conflict pushed oil prices higher.
- April 27, 2026: the SBP raised its policy rate by 100 basis points to 11.5 percent, its first hike since June 2023 and a move that caught most analysts off guard.
- June 15, 2026: the SBP held the rate at 11.5 percent for a second straight meeting, citing lower oil prices and progress on a US Iran deal.
Headline inflation had accelerated to 11.7 percent in May, its highest reading since June 2024 and well above the SBP’s 5 to 7 percent target range. That is the backdrop the sector’s second quarter numbers now sit against.
Non Interest Income Craters as the Capital Gains Cliff Hits
Topline expects non interest income, the category covering fee income, foreign exchange dealing and gains on the sale of securities, to fall to Rs. 84 billion. That is down 13 percent from a year earlier and 31 percent from the first quarter, and the brokerage pins the drop mainly on lower capital gains.
Those gains were real just three months ago. Bank Alfalah’s own first quarter disclosure, filed in April, credited a 58 percent jump in profit after tax partly to capital gains realized through active management of its bond portfolio. Even through 2025’s falling rate environment, Bank Alfalah’s net interest income climbed 7.1% for the year, a sign of how much deposit costs fell relative to loan yields during the cutting cycle.
When a central bank cuts rates, bond prices tend to rise, and banks holding those bonds can book the gain when they sell. Once the SBP reversed course in April, that trade stopped paying, which is a large part of why the non interest income line is now shrinking so fast.
Provisions Jump 6.5 Times in a Single Quarter
Three numbers capture how quickly credit costs are normalizing after two unusually calm years.
- Rs. 8.5 billion: the provision charge Topline expects for the second quarter of 2026, versus a Rs. 1.3 billion reversal in the same quarter of 2025.
- 6.5 times: how much higher that charge is projected to run compared with the first quarter of 2026 alone.
- Rs. 3.31 billion: the net credit loss allowance and write offs Bank Alfalah booked for full year 2025, up from just Rs. 271.2 million a year earlier, well before the sector wide swing showed up.
Alfalah’s own numbers suggest the credit cycle had already started turning at the bank level before Topline’s sector wide estimate caught up with it. A reversal means a bank decided it had set aside more than it needed against bad loans and can release some of that cushion as profit. A return to charges means the opposite: banks now expect more of their loans to sour.
Meezan and UBL Pull Ahead While Alfalah Falls Behind
Individual bank performance is expected to diverge sharply in the second quarter, even though every bank in the group is facing the same rate environment and the same fading capital gains.
| Bank | Q2 2026E EPS (Rs.) | YoY Change |
|---|---|---|
| Meezan Bank | 13.7 | +2% |
| United Bank Limited (UBL) | 13.6 | +19% |
| Habib Bank Limited (HBL) | 12.2 | Roughly flat |
| Bank Alfalah | 1.9 | -26% |
National Bank of Pakistan and Bank AL Habib are expected to post declines of 15 percent and 14 percent respectively, though Topline’s preview did not break out their absolute EPS figures. UBL’s strength follows a record 2025, when it posted the sector’s highest annual profit after tax. Banks leaning least on last quarter’s trading gains are the ones holding up best now; Alfalah, which explicitly credited capital gains for its first quarter surge, has the furthest to fall back to earth.
Why Are Bank Dividends Still Rising?
Dividends are holding up because banks are sitting on capital well above regulatory minimums, and Topline expects payouts to stay stable even as quarterly profit shrinks. MCB and UBL are projected to lead the sector at Rs. 9 and Rs. 8 per share for the quarter, among the highest in the group.
Topline also expects revaluation reserves, the unrealized gains banks hold on their bond books, to stay largely stable even as fresh trading gains dry up. It points to improved secondary market prices and the repricing of floating rate Pakistan Investment Bonds as the reason those cushions are not eroding along with realized income.
The Next Rate Decision Will Matter More Than This One
In its June 2026 policy statement, the central banks have started to raise their policy rates line was buried in a paragraph about the Middle East conflict’s spillover into global monetary policy. It warned that “a rising number of central banks have started to raise their policy rates,” hardly the backdrop for a quick return to the cuts that fueled 2025’s record earnings.
With inflation still running above target and the SBP’s own language pointing toward caution rather than easing, another rate cut looks unlikely before banks report their next quarter. That points to one direction for now: the provisioning line probably keeps climbing before it levels off.
Frequently Asked Questions
How large is Pakistan’s banking sector by annual profit?
Pakistan’s listed banks earned a combined Rs. 671 billion in calendar year 2025, up 11 percent from the year before. United Bank Limited posted the largest share of that total, with a record Rs. 130 billion in profit after tax, the highest of any bank in the country that year.
Why does Bank Alfalah’s EPS look so much smaller than Meezan Bank’s or UBL’s?
Part of the gap is mechanical. Bank Alfalah carried out a 2-for-1 stock split in March 2026, which roughly doubled its share count and cut per share metrics accordingly. The rest reflects the profit decline itself, since Topline expects Alfalah’s EPS to fall 26 percent year on year even before accounting for the extra shares outstanding.
What is a provision reversal, and why does it matter for bank earnings?
A provision is money a bank sets aside against loans it expects to lose. When actual losses run lower than expected, a bank can reverse part of that reserve back into profit, which is what boosted earnings across the sector in the second quarter of 2025. A swing back to a charge, as Topline expects for the second quarter of 2026, signals banks now see rising risk building in their loan books.
Why did profit after tax fall so much less than profit before tax?
Topline expects the effective tax rate to fall to 52 percent in the second quarter of 2026 from a higher level a year earlier, which is why profit before tax is projected to drop 10 percent year on year while profit after tax slips just 1 percent. Pakistani banks have carried elevated super tax rates in recent federal budgets, so a few percentage points of relief shows up quickly in the bottom line.
Is the State Bank of Pakistan likely to cut interest rates again soon?
The SBP describes the policy rate as its main monetary tool, and it has held that rate at 11.5 percent since its April hike. With inflation still above the 5 to 7 percent target band, near term easing looks unlikely.
When will Pakistani banks release their actual second quarter results?
Topline’s figures are estimates ahead of results season. Based on recent patterns, such as Bank Alfalah’s board approving its first quarter results about three weeks after that quarter closed, most major banks should report actual second quarter numbers through late July and into early August 2026.
Disclaimer: This article is for informational purposes only, is based on preliminary brokerage estimates for Pakistan’s banking sector as of July 2026, and is not investment advice; consult a licensed financial advisor before making decisions involving bank stocks.
