Pakistan Banks: Banking Sector Profits down 18% YoY in 1Q2018 (excluding outliers up 7%)
- Pakistan banking sector profits were down 18% YoY to Rs39bn mainly on account of one-time pension cost & lower capital gains recorded during the quarter. Excluding pension & capital gains, profits were up 7% YoY to Rs64bn. For our analysis, we have taken results of all listed banks that have announced their 1Q2018 financial results.
- Net Interest Income (NII) of the sector was up 9% YoY to Rs118bn driven by balance sheet growth, improving deposit profile and recoveries of markup income, we believe. This led to higher profits excluding outliers.
- Total provisioning reversal during 1Q2018 stood at Rs976mn vs. Rs2bn in 1Q2017 whereas provisioning expense against international NPLs stood at Rs138mn in 1Q2018 vs. reversal of Rs1.3bn in 1Q2017. To recall, UBL booked an above average provision charge of Rs2bn against NPLs that kept consolidated total provisioning reversal on lower side during 1Q2018.
- Non-Interest Income of banks were down 7% as capital gains remained on lower side due to high base effect. Capital gains during 1Q2018 declined by 40% to Rs8.1bn. The other key component of Non-Interest Income, fee, commission & brokerage income continued to post growth on YoY basis.
- Growth in non-markup expense stood at 7% YoY which is lower than historical average and lower than the growth seen in NII of the sector. This led to improvement in PBT of the sector (excluding pension cost & capital gains).
- Banks including Allied Bank (ABL), Habib Bank (HBL), MCB Bank (MCB) and United Bank (UBL) booked cumulative pension cost of Rs10.9bn during the quarter. To recall, Supreme Court had ordered these banks to increase minimum monthly pension to Rs8000/month to pensioners with an annual increase of 5%. This led to a one off charge during 1Q2018 which impacted sector’s profitability.
- We maintain our ‘Overweight’ stance on banking Sector as the sector is anticipated to benefit from rising interest rates scenario. We anticipate SBP to increase interest rates by 275bps by 2020. BAHL and MCB are our top picks for the sector.
Topline Securities is one of the fastest-growing brokerage houses in Pakistan. It has strong Equity Brokerage, Economic/ Equity Research, Commodity Trading and Corporate Finance & Advisory functions.
Topline Securities has been endowed with numerous awards by renowned international financial organizations. The highlights of which consists of the award for ‘Best Local Brokerage House of Pakistan’ by Asiamoney Brokers Poll (the largest Asia-focused equity services provider poll) in 2016 and ‘Best Equity Brokerage House’ by CFA Society Pakistan in 2015.
Previously, Topline Securities held the title for ‘Best Brokerage House’ for 4 consecutive years (2011-2014) by Asiamoney Brokers Poll. Other awards include the ‘Best Salesperson’ award by Asiamoney for 6 consecutive years (2011-2016), the ‘Arabia Fast Growth 500’ award and ‘Pakistan Fast Growth 100’ award in 2012 and 2013 by AllWorld Network.
JCR-VIS, a credit rating agency providing independent rating services in Pakistan has assigned initial rating of “A-2” for short term and “A” for long term to Topline Securities. Topline Securities is registered as Underwriter, Book Runner and Research Entity with Securities & Exchange Commission of Pakistan (SECP).
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