EUR 8.83 For Business Accounts Only

Pakistan Banks: TSA enters implementation phase + Result Previews,(AKD Daily, Oct 08, 2020)

• Treasury Single Account (TSA) implementation is front and center yet again, with the latest SBP circular released yesterday (9th Oct’20), directing specific Govt. functionaries to transfer deposits from Commercial banks to SBP. Resultant dampeners to investor sentiments are possible, where we advise investors to avoid banks with large Govt. deposits as modalities of this long term transition play out.
• Our correspondences with the management of various banks leads us to believe that the said measure would be neutral to negative for the industry since the initial accounts transfer do not represent large chunk of Govt. deposits.
• At the same time, Cash Reserve Requirement (CRR) for banks meeting targets related to housing and construction financing is to be reduced effective Dec’ 20 whereas penalty in the form of higher CRR would be imposed on banks missing those targets.  
• Concurrently, result season for the banking sector is to commence soon with HBL due to hold its BoD meeting on Oct 16’20. In this backdrop, we estimate 9MCY20 earnings for the Big-3 private banks at PkR58.9bn, +49.8%YoY with normalization in core income reflecting in 3QCY20 earnings, likely to stand at PkR19.5bn (down 17.8%QoQ/+24.7%YoY).
• Previewing results, we expect HBL to continue gaining from conclusion of US related costs whereas UBL’s Floating rate bonds portfolio and recovery in fee income could help the bank post solid results. MCB at the same time is likely to gain from normalization in provisioning costs and higher remittance flows translating into improved fee income performance.
• The latest downward move in the benchmark index has opened up valuations where the sector is currently trading at an undemanding CY21F P/B of 0.75x. That said, clarity (or lack of it) or complete implementation of TSA could keep momentum in check.