Pakistan Banks_May’20 spreads_Repricing factor in play, (AKD Daily, Jun 25, 2020)
Pakistan Banks: May’20 spreads_Repricing factor in play
- Banking sector spreads for May’20 stood at 5.64% (up 46bps MoM), buckling the declining trend in spreads since beginning of the year. The fresh move comes at the back of 200bps cut in interest rates in Apr’20 turning up repricing factor. 5MCY20 avg. outstanding spread stands at 5.42% as against 5.54% in the same period last year.
- Fresh spread during May’20 stands at 4.55%, flat MoM as credit spread (Fresh lending yield - 3M KIBOR) jumped to 2.2% compared to 1.6% in Apr’20, pinned by potential restructuring of loans, and higher risk categorization (Private sector offtake: -0.8%MoM in May’20 vs. 0.2/-0.3% last year/historical May avg.) under the pretext of COVID-19.
- We expect interest rate cuts (525bps since Mar’20) to be visible from 2HCY20 earnings of our banking universe with 67.8/83.4% loan book being repriced within 3/6Ms. However, stronger BS growth (evident by deposit growth of 7.0%MoM in May’20) and holding of PIBs could contribute to sustaining NII in the medium run.
- Given fluid macro situation and SBP acting to roll out reliefs to businesses, further interest rate cuts cannot be ruled which could continue pressure on banking sector. Hence, we advice investors to take a longer term investment horizon in building position where we like MEBL and MCB on potential to contain credit risks, and UBL on valuations.
AKD Research
Meezan Bank Limited is an Islamic commercial bank. The Bank is engaged in corporate, commercial, consumer, investment and retail banking activities. It offers a range of Islamic banking products and services through a retail banking network of over 550 branches in approximately 140 cities to its corporate, commercial and small and medium-sized enterprise (SME) customers based on their financial requirements. It provides personal banking, business banking, premium banking and branchless banking. The Bank also offers Meezan Rupee Current Account, Karobari Munafa Account, Meezan Rupee Savings Account, Meezan Business Plus Account, Meezan Bachat Account, Meezan Kids Club Account, Meezan Teens Club Account, Meezan Asaan Current Account, Meezan Kafalah, Certificates of Islamic Investment, Meezan Amdan Certificate and Dollar Mudarabah Certificate. It has assets in agriculture, food, forestry and fishing; cement, and others. The Bank operates only in Pakistan.
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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