FLASHNEWS:

AKD Securities Limited – AKD Daily (November 10, 2022)

Karachi, November 10, 2022 (PPI-OT): Pakistan Banks: Banking sector profitability at an all-time high level

Buoyed by attractive asset pricing and robust book growth, the profitability of our coverage banks hit a record high during 3QCY22 to reach PkR69bn, almost doubling on QoQ basis (+94%QoQ), as the effective tax rate normalized during the period under review. Note that the profitability of our banking universe took a massive hit during 2QCY22 owing to imposition of super tax.

Net Interest Income of our coverage universe increased by ~18%/45% QoQ/YoY as better asset pricing and robust book growth took the total NII of our coverage universe to ~PkR228bn while the average NIMs of our coverage universe have increased to 4.4% (Ex NBP NIMs: 4.9%).

On the other hand, while the non-funded income posted a robust growth of ~34%YoY, the growth momentum eased somewhat on QoQ basis (down ~7%QoQ) owing to the high base effect, as the banks realized windfall FX income during the last quarter which eased off slightly in 3QCY22.

The asset quality has remained robust during the quarter standing around 8% (Ex NBP: 6.2%) while the coverage ratio has reached ~102%. Apart from UBL and BAFL, which booked huge provisions on its Eurobond portfolio (UBL) and subjective provisioning (BAFL), the provisioning cost has remained contained despite significant slowdown in economic activity in the country which is a testament to prudent lending policies of the banks.

Despite various challenges, the country’s banking industry posted average annualized ROE of ~18% during the quarter and is trading at a forward P/B of ~0.56x. Notwithstanding challenges the economic slowdown poses to the sector, profitability growth is likely to remain robust in CY23 owing to absence of one-off tax liability that dented profitability in 2QCY22. We continue to highlight MEBL, UBL and BAFL as potential outperformers.