Report

Pakistan Banks: Deposit Protection Fund- New risk to earnings emerge

  • Our channel checks suggest one more new source of earnings downside for banking companies has emerged, which may have recurring impact on banks’ earnings.
  • We believe the central bank is planning to roll out deposit protection fund (deposit insurance scheme) as soon as in 2H18 with the requirement that banks will contribute 0.15-0.2% of eligible deposits every year in the fund.
  • This poses modest downside risk to banks’ earnings estimated at 3.5-4.8% (CY19E earnings). Banks with higher individual deposits and high leverage may suffer more.
  • Given the 9% price underperformance of banks in past 1-mth, we find banks valuation to be attractive despite emergent risks to earnings and downside from Super Tax/pension scheme.
  • We prefer big banks over mid-sized banks where both valuation and capacity to absorb potential downside is high. Our preferred picks are UBL, HBL and MCB.
Provider
BMA Capital Management Limited
BMA Capital Management Limited

​BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.

Analysts
Fawad Khan

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