Pakistan Banks: Soft earnings patch seen for banks in 3QCY18
The trends seen in major indicators for banking sector hint towards deeper than usual seasonal slowdown in core earnings momentum for banks in 3Q18.
The latest data suggests the deposits have shrunk 3% QoQ while investment yield is expected to come down due to retirement of PIBs (~PKR480bn). Spreads are however stable (4.88%,+4bps QTD) despite lag in loan re-pricing post policy rate hike in Jul’18.
The credit demand was, however, shielded from general slowdown seen in the production data of many industries with stable stock of private and public sector credit (+20/42% YoY respectively). We attribute YoY growth to rising commodity prices and increased margin on trade.
Non-fund income is, however, expected to remain strong in 3Q18 with major support from currency gains, remittances and trade.
All in all, profitability of banks is likely to drop by 3-4% QoQ (after taking into account absence of additional Super Tax and provisioning for deposit insurance cost). Among our coverage universe, UBL’s earnings are likely to see highest positive momentum while BAFL is expected to see most negative momentum in 3Q18. MCB and HBL are our top two picks.
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.
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