Pakistan Banks: In a tight spot
The banking sector has lost 5.4% in the last two months - making it amongst the worst performers in AKD Universe. The sector is again in limelight for all the wrong reasons- where recent budgetary proposals (super tax continuation), regulatory challenges (additional capital requirements by SBP, increase in minimum pension rate to PkR8,000/month) and increased oversight on foreign operations have been key dampeners. With regards to super tax applicability, we see banks' earnings to go down by an average 6%/5%/3% in CY18F/CY19F/CY20F while additional capital enhancement requirements can restrict banks' ability (particularly those that remain insufficient on the CAR front) to 1) participate in the credit upcycle and 2) payout dividends. Consequently, CY18F is going to be another slow year with earnings deceleration primarily a function of exogenous charges during the year. That said, recovery thereon should be swift (CY19F earnings growth of average 24%) particularly in the absence of one-offs while fundamental triggers (increasing pace of interest rates) should take centre stage. While banking sector valuations appear attractive overall (PB/PER at 1.2/9.4), risks remain, where we advise investors to build positions in fundamentally strong and relatively risk averse names like MCB and BAFL in the banking space.
Bank Alfalah Limited is a holding company. The Company's segments include Retail banking, including loans, deposits, trading activity, wealth management and other banking transactions with its retail and middle market customers; Corporate banking, which includes loans, deposits, project financing, trade financing, investment banking and other banking activities with its corporate and public sector customers; Treasury, including liquidity management activities carried out through borrowing, lending and money market operations; Consumer banking, including constitutes consumer financing activities with individual customers; Islamic banking, pertaining to its full scale Islamic Banking operations; International operations, which includes amounts related to its overseas operations, namely, commercial banking activities in Bangladesh and Afghanistan, and wholesale banking activities in the Kingdom of Bahrain, and Others, including merchant banking related activities.
AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.
AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.
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