*Banking Sector Report* (12 February 2025) Source: JS Research *Core Income Decline in 4QCY24* Pakistani banks are expected to report a YoY decline in core income due to narrowing Net Interest Margins (NIMs). Increased taxation is anticipated to offset gains from non-core income and asset base growth. *Key Banks' EPS Projections for 4QCY24:* HBL: Rs7.5 (-26% YoY) UBL: Rs11.9 (+8% YoY) MEBL: Rs12.3 (-18% YoY) AKBL: Rs3.4 (-28% YoY) HMB: Rs4.4 (-11% YoY) FABL: Rs2.4 (-54% YoY) *Macroeconomic Impact on Banking Sector* Monetary easing: Policy rate reduced by 1,000bps since June 2024. Lower deposit and borrowing rates due to the 4.5% policy rate cut from September–November 2024. *Higher taxation:* Additional 5% tax on CY24E PBT despite meeting the Advance-Deposit Ratio (ADR) threshold. Government raised income tax for banks from 39% to 44% (to be reduced to 43% in CY25 and 42% in CY26). *Sector Performance & Outlook* Non-Interest Income Growth: Gains from securities sales, fees, and dividends expected to provide some support. Stable FX income may lead to lower secondary income. *Operating Costs & Expenses:* Disinflation may slow the rise in expenses. Cost-to-Income ratio expected to drop to ~40% from 43% in 3QCY24. Dividends to remain stable, with no expected increases due to declining yields affecting future profitability. *Conclusion* Banks face challenges from reduced NIMs, policy rate cuts, and higher taxation. Non-interest income and asset base growth may provide some support. Dividend strategies remain intact, but banks may experience lower future profitability.