Pakistan: Banks Result Forecast

SBP oldCommercial banks in Pakistan follow December closing and results are expected to appear shortly, with first being ABL (Feb 10) and MCB (Feb 12).

Pakistan’s leading brokerage house, AKD Securities expect the Big-6 Banks to post combined profit after tax of PkR113.6 billion for 2014, up by 28%YoY (excluding National Bank of Pakistan likely to grow by 18%YoY).

This robust profit growth can be attributed to the shift in investment mix (from Treasury Bills to Pakistan Investment Bonds), selective realization of capital gains and reduction in credit costs.

The banking sector has gained 0.9%CYTD, underperforming the KSE-100 Index by 6.9% in the process. The brokerage house has attributed this to emergent concerns on interest rate margins within the backdrop of recent SBP statements on the subject.

Still, the brokerage house believes such concerns are overplayed where anticipated strong full-year CY14 expected results as well as buoyant 1HCY15 performance should provide reason for banks to rally.

The brokerage house forecasts the Big-6 banks to post 11%YoY growth for CY15, a moderate uptick on the back of windfall CY14 earnings. While potential regulatory tightening in 2HCY15 (placing rate floor on savings deposits 250bps below the discount rate as compared to 300bps differential at present) could shave an estimated 2%-3% of CY15 earnings estimates.

The house believes that the banks have the potential to compensate this by partly realizing hefty capital gain backlogs. Instead, positive surprises could be there if loan growth is higher than estimates.             .

Banks have gained 0.9%CYTD, underperforming the KSE-100 Index by 6.9% in the process. In this regard, we expect strong incoming CY14 results to catalyze bank’s price performance where there is significant room for valuation rerating in an improved macro setting.


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