Karachi, July 15, 2021 (PPI-OT): Banks: 2QCY21E core income to finally step up

We preview 2QCY21 results of the banking sector, where we expect the sector’s core income to finally move to an upward trajectory after 3 consecutive quarters of declining income as we believe re-pricing of assets have broadly been completed during 1QCY21.

With flat NIMs by large on a QoQ basis, we expect the sector’s Net Interest Income (NII) to report a single-digit growth on a QoQ basis over asset base growth, where we expect mid-tier banks to continue to outperform the sector average.

However, given hefty gains booked during 1QCY21, we do not expect the same this quarter, dampening sequential profitability growth during 2QCY21. In addition, we also incorporate average credit cost for 2QCY21, vis-a-vis nominal credit cost (reversals in some cases) booked during 1QCY21, further impacting bottom-line growth.

As a result, 2QCY21 profits for the sector are expected to decline by a single digit on a QoQ basis. From the JS Banking Universe, we expect HBL, UBL, MCB, ABL, MEBL and BAFL to announce cash dividends alongside 2QCY21 result announcements.

We flag MEBL, BAHL and HMB as our top picks based on growth stories and discounted multiples. We highlight HMB, UBL, MCB, ABL and AKBL as strong D/Y plays at current levels as well with CY21E D/Y as good as current 10-YR PIB yields.