Pakistan Bank: Credit risks manageable; preference for larger banks, (AKD Daily, Sep 24, 2020)
AKD Daily
Pakistan Bank: Credit risks manageable; preference for larger banks
- Benefitting from regulatory relaxations, loan quality remains convincing with total NPLs of private banks in our universe standing at PkR300.7bn in Jun’20 (+3.3%QoQ/+7.0% since Dec’19). Overseas NPLs recorded a sharp uptick to US$634.2mn in Jun’20 vis-à-vis US$603.8mn in Dec’19, primarily attributable to classification of a single party loan in Middle East.
- Most banks in our universe, following active risk management, subjectively booked loss reserve for potential weakening of loan portfolios. As a result, fresh credit charge jumped 0.6% during the quarter, its highest quarterly level since CY13. Recovery pipeline contracts though COVID-19 related disruptions could have additionally slowed the process (Jun’20 Reversals/NPLs: 1.0% vs. 5y avg. 1.8%).
- We flag risk of distort in NPLs trend as SBP and other Central Banks’ (where Pakistan banks operate) relaxations conclude. However, recoveries can gain momentum as activity in real estate picks up, softening provisioning costs overall.
- AKD private banking universe trades at a CY21F P/B of 0.8x, fairly valued based on historical trading multiples and ROE of 12.5%. However, abstract factors such as, i) sector being a proxy for Pakistan’s growth story and hence could undergo re-rating, ii) subsiding of foreign outflows, and iii) dividend yield of 8.0% could attract interest in the sector.
AKD Research
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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