Top 6 banks main­tain their prof­itabil­ity in 2015

The Pak Banker - - FRONT PAGE - Muham­mad Yasir

Pak­istan's top six banks main­tained their prof­itabil­ity in the clos­ing year of 2015 de­spite of heavy tax­a­tion mea­sure which ap­par­ently their mar­gins but th­ese com­pa­nies have a safe busi­ness strat­egy to in­vest in govern­ment pa­pers for re­tain­ing their prof­its which is es­ti­mated to grow by 12 per­cent as com­pared to 2015.

Ac­cord­ing to es­ti­mated that six banks, which in­cludes Habib Bank (HBL), Na­tional Bank (NBP), United Bank (UBL), MCB Bank (MCB), Al­lied Bank (ABL) and Bank Alfalah (BAFL), are ex­pected to re­port record prof­its of Rs130 bil­lion in 2015, up 12% YoY.

Th­ese banks rep­re­sent 63% of the to­tal in­dus­try de­posit are an­tic­i­pated to reg­is­ter im­pres­sive growth de­spite a 350bps de­cline in pol­icy rate dur­ing 2015. This is due to ma­jor in­vest­ment in high yield­ing long term Pak­istan In­vest­ment Bonds (PIBs) by th­ese banks (34% of to­tal de­posits) and vol­u­met­ric de­posit growth of around 10% for big banks.

De­spite sharp fall in in­ter­est rates and big PIB ma­tu­ri­ties ex­pected in 2016, banks still trade at at­trac­tive mul­ti­ples. Th­ese banks in­vest­ment to de­posit ra­tio (IDR) reached an all-time high of 71%, whereas ad­vance to de­posit ra­tio (ADR) dropped to 44% as of Sep 2015. Their Net In­ter­est In­come (NII) of th­ese banks is pro­jected to grow by 17% to Rs298 bil­lion driven by ma­jor in­vest­ments in PIBs and dou­ble digit de­posit growth. Along­side in­crease in NII of th­ese banks, growth in cap­i­tal gains is likely to drive earn­ings of banks in 2015. The ex­pec­ta­tion are cap­i­tal gains to grow by 79% to Rs37 bil­lion in 2015. Banks have ag­gres­sively re­al­ized cap­i­tal gains on PIBs and eq­ui­ties in 2015. In 9M2015, big banks had re­ported cap­i­tal gains of Rs30 bil­lion in 9M2015, up 109% YoY.

Mean­while ad­vances of big banks are ex­pected to grow by 4% in 2015 as against 9% in 2014 due to lower work­ing cap­i­tal re­quire­ment and ag­gre­gate de­mand. How­ever, with com­mence­ment of China-Pak­istan Eco­nomic Cor­ri­dor (CPEC) projects and up­lift in eco­nomic ac­tiv­ity we ex­pect ad­vances of big banks to grow by 13% on av­er­age dur­ing 2016-18. The pri­vate sec­tor credit has al­ready started de­pict­ing im­prove­ment as In 2H2015, credit to pri­vate sec­tor has grown by 9% as against 7% in the same pe­riod last year and 7.5% for the full year 2015.

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