Discuss PSX Sector - Commercial Banks

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  • جو شخص بہانہ بنانے میں بہت اچھا ہو ، وہ کسی اور کام میں اچھا نہیں ہو سکتا
  • پیسہ بدترین آقا ہے، مگر بہترین غلام بھی ہے
  • کسی فرد یا قوم کو برباد کرنا ہے تو اس کی امید کو مار ڈالیے اور اگر اسے تعمیر کرنا ہے اس کی امید کا دیا روشن کیجئے
  • کامیابی سوچ سے ملتی ہے
  • زندگی کی دوڑ میں دوسروں سے آگے نکلنے کیلئے تیز چلنا ضروری نہیں، بلکہ ہر رکاوٹ کے باوجود چلتے رہنا اور مسلسل چلتے رہنا ضروری ہے
  • جب باتیں آمنے سامنے ہوتی ہیں تو جھوٹ اور غلط فہممی کا خاتمہ ہو جاتا ھے
  • بہت اونچے پہاڑ پر چڑھنے کے لئیے قدم آہستہ آہستہ اٹھانا پڑتے ہیں
  • تین چیزیں نیکی کی بنیاد ہیں، تواضع بے توقع, سخاوت بے منت اور خدمت بے طلبِ مکافات
  • غربت اور افلاس کی وجہ پیداوار کی کمی نہیں، بلکہ اسکی غلط تقسیم ہے
  • دولت ہونے سے آدمی اپنے آپ کو بھول جاتا ہے اور دولت نہ ہونے سے لوگ اس کو بھول جاتے ہیں
  • مصروف زندگی نماز کو مشکل بنا دیتی ہے , لیکن نماز مصروف زندگی کو بھی آسان بنا دیتی ہے
  • گناہ کو پھیلانے کا ذریعہ بھی مت بنو, کیونکہ ہوسکتا ہے آپ تو توبہ کرلو, لیکن جس کو آپ نے گناہ پر لگایا ہے وہ آپ کی آخرت کی تباہی کا سبب بن جائے
  • اپنی زندگی میں ہر کسی کو اہمیت دو, جو اچھا ہوگا وہ خوشی دے گا اور جو برا ہوگا وہ سبق دے گا
  • درخت جتنا اونچا ہو گا اس کا سایہ اتنا ہی چھوٹا ہو گا, اس لیے اونچا بننے کی بجائے بڑا بننے کی کوشش کرو
  • جو شخص کوشش اور عمل میں کوتاہی کرتا ہے, پیچھے رہنا اس کا مقدر ہے
  • جو لوگ میانہ روی اختیار کرتے ہیں, کسی کے محتاج نہیں ہوتے
  • حقیقی بڑا تو وہ ہے جو اپنے ہر چھوٹے کو پہچانتا ہوں اور اس کی ضروریات کا خیال رکھتا ہو

Apr 11, 2017
830
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#21
Commercial Bank: Time for a change—GoP to issue variable rate PIBs


08 May 2018
Taurus Securities Limited




  • The State Bank of Pakistan, via its circular dated May 7, 2018, has announced the issuance of floating rate Pakistan Investment Bonds, under the Pakistan Investment Bond Rules, 2000.
  • We believe initially the government is targeting an issue of PKR 200bn worth of floating rate PIBs, whose auctions will take place in the next three months
  • Coupon rate on the floating rate PIBs will be pegged to the weighted average yield on the latest issue of 6-months MTBs, to be re-priced on a semi-annual basis.
  • We believe the measure to have come timely when the Government is in dire need of funds to meet the fiscal requirements on a long-term basis but Banks being the largest lenders are reluctant to commit funds on a fixed rate for the long-term given a rising rate scenario.
 
Apr 11, 2017
830
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#22
Commercial Bank: Implications of Budget and Regulations More than Priced-in –By IIS Research

08 May 2018
Ismail Iqbal Securities (Pvt.) Limited




  • A majority of the Banks under our coverage have reached attractive levels due to the recent rout, which we believe is an over-reaction to recent developments in the Sector. These developments include certain tax measures as well as prospects of greater regulatory requirements. On the other hand, Banks stand to gain from interest rate hike, of an expected 100-125bps in the next one year. Our top picks within the sector are Habib Bank (HBL) and Allied Bank (ABL).
  • We expect a 100-125bps hike in the next one year’s time partly because we expect the external position to continue to be problematic, albeit at a less disconcerting level than it has been recently. We also expect monetary tightening in a number of regions across the globe to push SBP to raise its policy rate in order to prevent further PKR devaluation. Moreover, we expect higher inflation than last year to encourage a rate hike.
  • As per our calculations, Bank Al Falah (BAFL) and Bank Al Habib (BAHL) are likely to benefit the most from rate hikes because of their favourable deposit mix as well as earnings assets mix.
 
Apr 11, 2017
830
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#23
Commercial Bank: Interest Rate Hike to Support Earnings


08 May 2018
Ismail Iqbal Securities (Pvt.) Limited




  • A majority of the Banks under our coverage have reached attractive levels due to the recent rout, which we believe is an over-reaction to recent developments in the Sector. These developments include certain tax measures as well as prospects of greater regulatory requirements. On the other hand, Banks stand to gain from interest rate hike, of an expected 100-125bps in the next one year. Our top picks within the sector are Habib Bank (HBL) and Allied Bank (ABL).
  • We expect a 100-125bps hike in the next one year’s time partly because we expect the external position to continue to be problematic, albeit at a less disconcerting level than it has been recently. We also expect monetary tightening in a number of regions across the globe to push SBP to raise its policy rate in order to prevent further PKR devaluation. Moreover, we expect higher inflation than last year to encourage a rate hike.
  • As per our calculations, Bank Al Falah (BAFL) and Bank Al Habib (BAHL) are likely to benefit the most from rate hikes because of their favourable deposit mix as well as earnings assets mix.
 
Aug 12, 2016
919
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Karachi
Education Level
B.Com
#24
Pearl News: The State Bank of Pakistan will announce its Monetary Policy Statement on Friday


23 May 2018
Pearl Securities Limited




  • The State Bank of Pakistan will announce its Monetary Policy Statement on Friday for next two months. In the previous review, the central bank maintained its policy rate at 6% in the wake of low inflation.
  • Pakistan has sent its high-powered delegation to Bangkok for attending the two-day plenary session of the Financial Action Task Force (FATF) starting from May 22nd to brief the forum about the steps taken by Islamabad against money laundering and terror financing as a last-ditch effort to avoid falling into the grey list by next month.
  • Almost a week before transfer of power to a caretaker set-up, Ecnec approved nine development projects worth Rs775billion. The Ecnec meeting, presided over by Prime Minister Shahid Khaqan Abbasi, approved revised costs of two major water sector projects worth Rs523.47bn.
  • Pakistan planned to import 20,000 tons of cotton from Afghanistan to somehow ease shortfall of the textile sector’s major input in the country where water shortage is dampening the crop outlook, officials said.
 
Apr 11, 2017
830
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#25
Commercial Bank: Spring in summers! SBP raises policy rate by 50bps


28 May 2018
Taurus Securities Limited




  • State Bank of Pakistan's Monetary Policy Committee (MPC) has raised the policy rate by 50bps in its latest Monetary Policy Statement (MPS) contrary to expectations of a 25bps.
  • The MPC cited multiple reasons for the hike namely: i) rising international oil prices which may translate into inflationary pressures going forward; ii) elevated aggregate demand which has kept imports high offsetting the impact of robust growth in exports exacerbating the current account deficit; and iii) a lack of foreign inflows amidst absence of triggers.
  • We believe the uptick in policy rate to be a huge sigh of relief for the industry reviving spreads further. In addition, the approved Finance Bill 2018, is also set to bring relief to sector earnings by curbing the incidence of Super Tax for CY18 from 42% for TY18 to 39%.
  • Consequently, we have incorporated the uptick in policy rate along with changes to Super Tax into our models, effecting revised earnings forecast for CY18 along with revised target prices as at Dec'18 as shown in the table below.
 
Apr 11, 2017
830
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#26
Commercial Bank: Super-tax abolished for CY17; sector profitability likely to improve for CY18


28 May 2018
Taurus Securities Limited




  • State Bank of Pakistan's Monetary Policy Committee (MPC) has raised the policy rate by 50bps in its latest Monetary Policy Statement (MPS) contrary to expectations of a 25bps.
  • The MPC cited multiple reasons for the hike namely: i) rising international oil prices which may translate into inflationary pressures going forward; ii) elevated aggregate demand which has kept imports high offsetting the impact of robust growth in exports exacerbating the current account deficit; and iii) a lack of foreign inflows amidst absence of triggers.
  • We believe the uptick in policy rate to be a huge sigh of relief for the industry reviving spreads further. In addition, the approved Finance Bill 2018, is also set to bring relief to sector earnings by curbing the incidence of Super Tax for CY18 from 42% for TY18 to 39%.
  • Consequently, we have incorporated the uptick in policy rate along with changes to Super Tax into our models, effecting revised earnings forecast for CY18 along with revised target prices as at Dec'18 as shown in the table below.
  • State Bank of Pakistan's Monetary Policy Committee (MPC) has raised the policy rate by 50bps in its latest Monetary Policy Statement (MPS) contrary to expectations of a 25bps.
 
Apr 11, 2017
830
1
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#27
Commercial Bank: Super-tax abolished for CY17; sector profitability likely to improve for CY18


28 May 2018
Taurus Securities Limited




  • State Bank of Pakistan's Monetary Policy Committee (MPC) has raised the policy rate by 50bps in its latest Monetary Policy Statement (MPS) contrary to expectations of a 25bps.
  • The MPC cited multiple reasons for the hike namely: i) rising international oil prices which may translate into inflationary pressures going forward; ii) elevated aggregate demand which has kept imports high offsetting the impact of robust growth in exports exacerbating the current account deficit; and iii) a lack of foreign inflows amidst absence of triggers.
  • We believe the uptick in policy rate to be a huge sigh of relief for the industry reviving spreads further. In addition, the approved Finance Bill 2018, is also set to bring relief to sector earnings by curbing the incidence of Super Tax for CY18 from 42% for TY18 to 39%.
  • Consequently, we have incorporated the uptick in policy rate along with changes to Super Tax into our models, effecting revised earnings forecast for CY18 along with revised target prices as at Dec'18 as shown in the table below.
  • State Bank of Pakistan's Monetary Policy Committee (MPC) has raised the policy rate by 50bps in its latest Monetary Policy Statement (MPS) contrary to expectations of a 25bps.
 
Apr 11, 2017
830
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#28
Commercial Banks: Banks and Positive leverage stocks to save valuations


07 June 2018
Insight Securities (Private) Limited




  • Foreseeing the fragile Balance of Payments situation, we previously assumed SBP policy rate of 7.5% (+175bps monetary tightening in 2018) and 10-year PIB yield of 9% by Dec 2018. However, policy inaction for prolonged period and surprise rise in crude oil prices would now require more intense corrective actions.
  • Now that it is almost certain that Pakistan is looking for IMF bailout package, it would also be worthwhile to look at periods around previous IMF packages (2008 and 2013) when interest rates were increased by 0.5-3.5% while Pak rupee devalued 2-21%. (tables in next slides). So far, SBP has increased policy rate by 75bps while PKR has devalued by 9% since Nov 2017.
  • Interesting, the recently appointed caretaker Finance Minister, Dr. Shamshad Akhtar, remained Governor SBP during Dec 2006 to Dec 2008. During her tenure, Pakistan entered into an IMF program and withstood its steepest ever monetary tightening of 550bps.
  • We revise our SBP Policy rate estimations to 8.5% by Jun 2019. However, we maintain our currency depreciation estimations of 10% till Jun 2019 to new parity of 128 USD-PKR, taking total depreciation to 18% from 105.5 in Nov 2017.
 
Apr 11, 2017
830
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#29
Commercial Bank: Sector’s Profitability Takes a Hit from Lower NFI


11 June 2018
Arif Habib Limited




  • As per SBP, the overall banking sector profitability for 1QCY18 clocked in at PKR 41bn, portraying a 16% YoY decline
  • Despite the decline in spreads between lending and deposit rates, banks managed to increase their Net Interest Income (NII) by 7.2% YoY as a 10.8% improvement in mark-up income dampened the impact of a rise in interest expense of 14.6% during the said period. Dampening in earnings came primarily on account of lower Non-Funded Income (NFI) attributable to a 36.7% YoY downturn in “Other Income” which is most likely due to lower capital gains booked by banks during 1QCY18.
  • Furthermore, large banks booked pension costs worth PKR 10.9bn cumulatively which stressed profitability of the sector further. Out of the KSE-100 banks, MEBL posted the highest YoY increase in earnings during 1QCY18 of 29%, followed by BOP which registered a 24% uptick, whereas amongst other banks, SBL posted a phenomenal increase in profitability of 2.7x led by higher capital gains and fee income.
 
Apr 11, 2017
830
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#30
Commercial Bank: SBP designates HBL, UBL and NBP with “D-SIB” Status


19 June 2018
Taurus Securities Limited




  • In April'18, the SBP's Banking Policy & Regulations Department, announced implementation of the Domestic Systematically Important Banks (D-SIBs) framework, in line with the emerging best practices globally, and to enhance capital adequacy monitoring of the domestic banking system
  • In accordance with the same, the SBP has designated Habib Bank Limited (HBL), United Bank Limited (UBL) and the National Bank of Pakistan (NBP) as Domestic Systematically Important Banks. Resultantly, these Banks will now need to meet higher Loss Absorbency capital surcharge in the form of maintaining additional Common Equity?Tier I capital, along with implementing prescribed enhanced supervisory requirements by March'19.
  • Drawing attention to HBL and UBL which are part of the TSL Banking Universe, both the Banks will be required to maintain additional CET-I as follows: i) HBL? 2%; and ii) UBL– 1.5%; by the end of 1QCY19. Referring our earlier impact analysis, we believe both the Banks to have sufficient additional CET-I buffers to meet the enhanced requirements.
  • In addition, we flag the above announcement to be a huge positive for Bank Al-Habib Limited (BAHL) which we believe had the lowest additional CET-I buffer, but is now out of harm's way for another year, till such time that it may build sufficient buffer.
 
Apr 11, 2017
830
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#31
Commercial Bank: HBL, NBP and UBL designated as D-SIB, requiring higher capital buffer


19 June 2018
EFG Hermes Pakistan Limited




  • The State Bank of Pakistan (SBP) designated HBL, UBL and NBP as Domestic Systemically Important Banks (D-SIB) in Pakistan. The three banks would be required to meet enhanced supervisory and regulatory requirements by the end of March 2019. As per the SBP press release, HBL will be required to maintain additional CET1 of 2.0%, while NBP and UBL will be required to maintain an additional CET1 buffer of 1.5%.
  • Banks having total exposure of greater than 3% of country’s GDP
  • Segment’s largest bank and banks operating as subsidiary or branch of global systemically important financial institution
  • While all three banks have CET1 ratios currently that comfortably meet the requirement, the designation as DSIB would require them to maintain an adequate buffer over the minimum requirement. We believe that this could partially dent the bank’s payout ratios slightly. We however do not expect the additional regulatory requirements to result in banks being pushed to issue rights to raise capital, as the requirement can be easily met through a slight tweak in dividend policy. HBL has already cut down its dividend post imposition of fine by the New York Department of Financial Services. However, UBL’s dividend payout ratio (61% in 2017) is high, and might need a slight downward adjustment. In the case of NBP, the decision by the courts on the pension liability is significant as a full payment of the pension liability (estimated at PKR54bn) could shave off c400bps off the bank’s CET1 ratio.
 
Apr 11, 2017
830
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#32
Commercial Bank: Yields on PIBs remain on upward Trajectory


20 June 2018
JS Global Capital Limited





  • Yields for 3-YR, 5-YR and 10-YR Pakistan Investment Bonds (PIBs) increased by 45-95bps during 1Q2018, where JS Banking Universe witnessed attrition of Rs750mn-6,200mn on its unrealized gains on PIBs/Federal Government Securities.
  • Currently, an average of 35% of Investment book is parked in PIBs, which sums up to 20% of total Deposits.
  • In addition, more than 60% of the PIB investments have been categorized under ‘Available-for-Sale’ (AFS
  • With only 15bps change in 3-YR yields during YTD 2Q2018, we expect limited erosion in Surplus on Revaluation of assets for 2Q2018, leading to partially netting of the positive impact of higher benchmark rate of the banking sector’s profitability.
 
Apr 11, 2017
830
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#33
Commercial Bank: Three key themes: Rates, growth, and regulations


21 June 2018
EFG Hermes Pakistan Limited




  • Pakistan banks in our coverage trade at an aggregate one-year forward P/BV of 1.2x – multi-year lows – at a time when earnings drivers are turning positive. Rates are rising, while loan growth rates have remained strong. Though regulatory changes could raise a hurdle on capital, banks are generally well placed to meet additional requirements, in our view. We maintain our preference for MCB (higher capital ratios, asset-quality recovery, higher gearing to rates), UBL (sufficient capital, loan growth), and Alfalah (higher gearing to rates, improving cost efficiency and sufficient capital buffers).
  • The short dated investment book, corporate-oriented loan book with quarterly repricing, and c35-40% of non-remunerative deposit mix mean that Pakistan banks’ profitability is geared to rising interest rates. The central bank has raised policy rates by 75bps over the past three meetings this year. The most recent hike of 50bps took the market by surprise due to the magnitude of the increase. The central bank may continue to maintain its hawkish monetary stance given the deteriorating current account balance, and we are likely to see further rate hikes before the end of the year.
  • Loan growth momentum is yet to be impacted by the heightened political noise in the country since the start of the year. The most recent data point (May-18) indicates that credit demand remains strong – 18.7% Y-o-Y growth. Both corporate and consumer loan growth trends have remained strong, suggesting minimal impact on credit demand from the political uncertainty. Corporate credit demand is partly driven by projects, and hence less dependent on short-term changes. In particular, lending related to China Pakistan Economic Corridor (CPEC) should continue. We will however be looking at consumer loan growth to see if the current momentum sustains.
 
Apr 11, 2017
830
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#34
Commercial Bank: Growth: Unfazed by political uncertainty, so far


21 June 2018
EFG Hermes Pakistan Limited




  • Pakistan banks in our coverage trade at an aggregate one-year forward P/BV of 1.2x – multi-year lows – at a time when earnings drivers are turning positive. Rates are rising, while loan growth rates have remained strong. Though regulatory changes could raise a hurdle on capital, banks are generally well placed to meet additional requirements, in our view. We maintain our preference for MCB (higher capital ratios, asset-quality recovery, higher gearing to rates), UBL (sufficient capital, loan growth), and Alfalah (higher gearing to rates, improving cost efficiency and sufficient capital buffers).
  • The short dated investment book, corporate-oriented loan book with quarterly repricing, and c35-40% of non-remunerative deposit mix mean that Pakistan banks’ profitability is geared to rising interest rates. The central bank has raised policy rates by 75bps over the past three meetings this year. The most recent hike of 50bps took the market by surprise due to the magnitude of the increase. The central bank may continue to maintain its hawkish monetary stance given the deteriorating current account balance, and we are likely to see further rate hikes before the end of the year.
  • Loan growth momentum is yet to be impacted by the heightened political noise in the country since the start of the year. The most recent data point (May-18) indicates that credit demand remains strong – 18.7% Y-o-Y growth. Both corporate and consumer loan growth trends have remained strong, suggesting minimal impact on credit demand from the political uncertainty. Corporate credit demand is partly driven by projects, and hence less dependent on short-term changes. In particular, lending related to China Pakistan Economic Corridor (CPEC) should continue. We will however be looking at consumer loan growth to see if the current momentum sustains.
 
Apr 11, 2017
830
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#35
Commercial Bank: May’18 Spread Remains Flat; Loans to the Private Sector up 7%YTD


26 June 2018
Taurus Securities Limited




  • According to the latest data released by the State Bank of Pakistan, Banking Sector spread on outstanding loans remained flat, declining marginally to 4.83% for the month of May'18 (- 1bpsMoM and –15bpsYoY).
  • Spread on fresh disbursements plunged to 3.69% (-12bps) despite recovering in the previous month following re-pricing of loans, as MoM fund cost soared 6bps.
  • Loans to private sector businesses were up by a solid 7%YTD, compared to 5%YTD growth witnessed in the SPLY, propelled by growth in the manufacturing and infrastructure sectors.
  • Consumer financing also registered robust YTD growth of 9% versus 7% in the SPLY led by 14%YTD growth in Auto Finance (consistent with last year), while housing finance arrived at 7%YTD growth against 12% in the SPLY.