Pakistan Banks_Monetary settings beginning to reflect in spreads (AKD Daily, Dec 24, 2021)
AKD Daily
Pakistan Banks: Monetary settings beginning to reflect in spreads
- Banking sector spread for Nov’21 stood at 4.2%, marking the sixth consecutive month of diminishing spread. Although, fresh spreads — being reflective of recent monetary settings – have begun to inch up with Nov’21 spread standing at 4.83%, +88bps MoM.
- Fresh lending yields incurred negative credit spread during the month of –ve 16bps vs. 33bps in Oct’21 where one plausible explanation is preponing of loan requirements eyeing further rate hikes in the future amid global prices spiraling upwards increasing cash flow needs, and banks capitalizing on the opportunity in order to meet regulatory threshold of 50% of ADR.
- In the previous interest rate upcycle, spreads avg. at 5.6% compared to Nov’21 spread of 4.2%. In the current cycle, while there is a significant room for spreads to mean revert, the presence of subsidized loans (20.0% of total outstanding private sector loans vs. 9.2% in Oct’18) with further disbursements under TERF in the near term might result in realized spread falling short of mean.
- With Govt. likely capping growth, a shift to value from growth sectors is imminent with Banks in a perfect spot through historically attractive valuations (CY22F P/B: 0.6x) and improving dividend yield prospects not found in any other sector. Our top pick from our universe is MCB (TP: PkR180.1/sh) and MEBL (TP: PkR151.8/sh).
AKD Research
National Bank of Pakistan (the Bank) is a Pakistan-based commercial bank. The Bank provides commercial banking services, including commercial loans, investment advisory, asset management, global remittances, agency services, forex, leasing, modarba, underwriting, brokerage, and other banking and financial services. The Bank offers retail products, which include saving deposits, current deposits, housing finance, personal loans and agricultural loans; transaction banking services, which include cash management, trade finance and services, and remittance management; Corporate Finance services, which include deposits, structured corporate finance, capital advisory, investment advisory and trade finance; Treasury services, which include forex and financial derivatives, and government to person (G2P) services, which include pension payments, tax and fee collection, and other payments. The Bank serves its customers in over 20 countries.
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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