Karachi, November 03, 2021 (PPI-OT): Banks: 3QCY21 review

We review JS Banking Universe’s 3QCY21 financial accounts where our sample base reported 7% YoY lower core income, resulting in 7% YoY decline in bottom-line and limiting 9MCY21 bottom-line growth to 8% YoY.

We believe the sector will continue to remain in the limelight amid rising interest rates and Pakistan’s reclassification from Emerging Markets (EM) to Frontier Markets (FM) scheduled this month. However, gradual increase in Policy Rate will initially result in NIMs contraction over immediate increase in cost of funds with upwards adjustment of savings rates on deposits, while re-pricing of loans may take a quarter or two.

We believe the recent outperformance of the sector (+11% YTD FY22) still leaves room for further upside. Warranting a P/B of 1.2x, with average Tier I ROE of 19% the sector currently trades at attractive P/B at 0.7x, in addition to D/Y of 10%. We reiterate our liking for MEBL, BAHL and BAFL among growth plays, while we like HMB and UBL from the value play space.