Pakistan Bank: Not much concern on Asset Quality, (AKD Daily, Sep 27, 2019)
- Non-Performing Loans (NPLs) of the banking sector jumped to PkR697.2bn in 1HCY19, +PkR73.1bn (12.2%) relative to CY18 close (Infection ratio: 8.8% in 1HCY19 vs. 8.0% in CY18), whereas excluding the impact of currency devaluation on overseas bad loan book, system NPLs clocked in at PkR678.5bn.
- Banks under our coverage have remained largely immune to a rise in infections (NPLs: +2.7%QoQ), with infection ratio standing at 7.1% while coverage ratio improved to 88.5% in Jun’19, +2.4ppt QoQ.
- Recent macro and sectoral trends do indicate rising credit risks piercing into banking sector profitability over the coming quarters (AKD universe CY20/21F Cost of provisioning: 0.8/1.3%), however it could be on a lower scale than in previous down cycle given better financing mix and higher govt. guaranteed financing.
- Hence, we expect investors to give more weight to ROE vis-à-vis valuation relative to possible credit risks in the loan portfolio in case NPLs accretion remain moderate. We have our liking for HBL and UBL (due to potential of ROE recovery, HBL CY19F/CY20F ROE: 8.7/16.8% | UBL CY19/20F ROE: 10.9/14.5%).
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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