Bank Alfalah Profit Falls 52% in 3Q2025

Earnings slump amid higher operating expenses and weaker non-interest income

Bank Alfalah Ltd (BAFL) reported a sharp decline in profitability for the third quarter of 2025, with consolidated earnings falling 52% year-on-year to Rs6.3 billion, translating into earnings per share (EPS) of Rs4.0.

The result came in below market expectations, primarily due to elevated operating costs. On a quarterly basis, profit was also down 21%, bringing nine-month (9M2025) earnings to Rs21.4 billion (EPS Rs13.6), a 39% decrease compared with the same period last year.

Topline analysts said that the decline was mainly driven by a surge in expenses, which rose 48% YoY and 4% QoQ during the July–September quarter.

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Analysts attributed the higher cost base to ongoing remittance-related spending as the bank sought to consolidate its market position in the remittance business.

According to channel checks, Bank Alfalah’s market share in remittances improved from 13% in June 2025 to over 15% in September 2025, suggesting that the increased expenditure did support volume growth, albeit at a temporary cost to profitability.

As a result of these higher costs, the bank’s cost-to-income ratio jumped to 67% in 3Q2025 from 45% a year earlier, while the 9M2025 ratio stood at 64% versus 48% in 9M2024.

Management sources suggest that remittance-related expenses have started to normalize, and a visible improvement in cost efficiency is expected from the December 2025 quarter onward. Notably, marketing and advertisement expenses surged more than fourfold to Rs13.7 billion during 9M2025 compared to Rs3.1 billion in the corresponding period last year.

Non-interest income (NII) also weakened, declining 14% YoY and 23% QoQ to Rs11.5 billion in 3Q2025. The drop stemmed largely from lower gains on securities, which fell 67% YoY to Rs2 billion, while foreign exchange income rose 48% YoY to Rs3.6 billion, partly offsetting the shortfall.

On the lending side, Net Interest Income rose modestly by 4% YoY to Rs34 billion, reflecting a relatively stable net interest margin in a high-interest-rate environment.

On the balance sheet, Bank Alfalah’s deposits contracted by 5% on a quarterly basis to Rs2.2 trillion, though they were up 1.4% compared to the previous year. The current account mix improved slightly to 43% of total deposits as of September 2025, compared to 41% in June 2025. Industry-wide deposit data showed similar quarter-on-quarter contraction, indicating sector-wide pressure on deposit mobilization amid liquidity tightening.

The bank booked provision expenses of Rs1 billion for the quarter, bringing cumulative provisions for 9M2025 to Rs2 billion. The effective tax rate stood at 54% in 3Q2025, down from 57% in 2Q2025 but higher than 51% in the same period last year, reflecting ongoing fiscal pressures and higher tax incidence on the banking sector.

Alongside the results, Bank Alfalah declared a cash dividend of Rs2.5 per share, in line with analyst expectations. This takes the total dividend payout for the first nine months of 2025 to Rs7.5 per share.

Despite the weaker quarter, analysts remain positive on the bank’s long-term fundamentals, citing normalization of marketing expenses and expected improvement in cost management. The bank’s ongoing investment in remittance and digital channels is also viewed as a medium-term growth driver, particularly as remittance flows into Pakistan stabilize following the volatility seen earlier in the year.

At current market levels, Bank Alfalah stock is trading at an estimated 2025 price-to-earnings (P/E) ratio of 6.2 and a price-to-book value (PBV) of 0.9, offering a dividend yield of around 9%. Analysts maintain a “Buy” stance, citing attractive valuations and the bank’s improving market share in key segments despite short-term margin pressure.