Pakistan Banks_Banking spreads - On the rise still, (AKD Daily, Dec 08, 2022)
The fresh spreads of the country’s banking sector posted another sequential uptick in the month of Nov’22, inching up to 3.9% during Nov’22 from 2.4% during the previous month. The yields on fresh lending and the cost of fresh deposits moved in the opposite directions which resulted in the increase in spreads.
As for the overall spreads, they clocked in at 2.4% during Nov’22 as against 2.2% they clocked in the previous month, posting a nominal jump of 26bps. The uptick in overall spreads come as a result of better yields on assets, which jumped by 26bps. The cost of deposits meanwhile remained stable.
The banks have continued to focus on cost free deposits which has helped the AKD banking universe contain its markup expenses. Consequently, the average CA/TD ratio of our coverage universe has gradually improved from 38% during 3QCY21 to reach around 40% during the last quarter.
With SBP raising interest rates by another 100bps in the last MPS, the ground has been set for further hikes in the coming days. With there being a mismatch in repricing of assets and liabilities, where liabilities get repriced first, the banking sector spreads may squeeze a little before increasing again. Support may however come from increased weight of current accounts in the total deposit mix.
With country facing a serious economic challenges, the economic activities are likely to slow down and the central bank may be forced to increase interest rates even further in order to curb the inflationary pressures. Consequently, the market performance may take a beating as the risk free yields go up even further. We advise investors to maintain exposures to high dividend yields scrips in this scenario. In this backdrop UBL and MCB may be primed to outperform , offering dividend yields of over 20% each.
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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