Pakistan Banks_Economic recovery confining credit risks, (AKD Daily, Mar 09, 2021)
AKD Daily
Pakistan Banks: Economic recovery confining credit risks
- Banking sector delivered a much better than expected performance on loan quality in a tumultuous CY20 where total NPLs of our private banking universe (representing 55.4% of total industry advances, excluding HMB) surged by 6.8%, inline with yearly historical averages, attributable to timely response by SBP.
- We remain comfortable on asset quality as relief period expires with the view also shared by managements of our universe’s banks that after aggressively building up loss reserves in 2Q/3Qs (c. PkR18.4bn or 0.5% of gross advances), banks either opted to reduce pace of accumulation or partly reverse provisions eyeing improved economic performance.
- Our assumption is based upon heightened economic activity particularly in real estate translating into improved recovery prospects for the banking universe (recovery ratio in 4QCY20 stands at 2.2%, highest quarterly avg. since Dec’17) and debt swap arrangements. Hence, potential reversals in credit charge could assist in countering any fresh NPL accumulation in our view.
- Currently underperforming the broader index by 4.1%, the banking sector could return to limelight as commodity upcycle led concerns on inflation and external account and an eventual rate hike by the Central Bank carves into investor expectations.
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.
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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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