The Pak Banker - - FRONT PAGE -

A ma­jor­ity of com­mer­cial banks hav­ing posted a hand­some growth in cap­i­tal gains the out­go­ing year of 2015 may see vari­ant drop in un­re­al­ized cap­i­tal gains sub­se­quently sig­nif­i­cant ma­tu­rity of long-term Pak­istan In­vest­ment Bonds (PIBs) in 2016. Ac­cord­ing to sta­tis­tics, PIBs worth of Rs 1.2 tril­lion are due to ma­ture in July 2016 as against to­tal out­stand­ing PIBs of Rs4.3 tril­lion hence the con­tri­bu­tion of their mar­gins are likely to slash af­ter sec­ond half of 2016.

It is worth men­tion­ing here that PIB hold­ings by listed banks in­creased to Rs3 tril­lion in 2015 con­sti­tut­ing over­all 48% of in­vest­ments of banks ver­sus Rs2.4 tril­lion (50% of in­vest­ment) in 2014 and Rs704 mil­lion (18% of in­vest­ments) in 2013.

Ac­cord­ingly, the un­re­al­ized gains (reval­u­a­tion sur­plus) in­creased to Rs206 bil­lion at the end of 2015 from Rs121 bil­lion in 2013 (Rs208 bil­lion in 2014) as banks started ac­cu­mu­lat­ing PIBs since then and in­ter­est rates were re­duced by 400bps dur­ing last 4-year to 6 per­cent.

Con­se­quently, banks re­al­ized to­tal cap­i­tal gains worth of Rs56 bil­lion mainly from PIBs, which were up 85% YoY in 2015. This cou­pled with higher Net In­ter­est In­come (NII) drove profitabil­ity of listed banks in 2015, up 14% YoY to Rs175 bil­lion. Since bond prices con­verge to its face value ap­proach­ing its ma­tu­rity, it is es­ti­mated that un­re­al­ized gains to go down sharply in 2016, as­sum­ing State Bank of Pak­istan (SBP) main­tains its pol­icy rate at 6% in up­com­ing mone­tary pol­icy.

How­ever, big banks such as Habib Bank (HBL) and United Bank (UBL) are an­tic­i­pated to be lower af­fected from up­com­ing ma­tu­rity as around 15-17% of their out­stand­ing PIB hold­ings will ma­ture in 2016, sig­nif­i­cantly lower than 28% of to­tal PIBs ma­tur­ing in 2016 for the in­dus­try. For HBL, to­tal worth of around Rs63 bil­lion which is 15 per­cent of PIBs are an­tic­i­pated to ma­ture in 2016. On the other hand, around Rs82 bil­lion of 17% of PIBs are ex­pected to ma­ture for UBL. UBL also has one of the highest un­re­al­ized gains to mar­ket cap­i­tal­iza­tion ra­tio in the in­dus­try. Whereas, Na­tional Bank (NBP) and MCB bank (MCB), ma­tu­ri­ties of PIB in 2016 are around 30% and 36% of their to­tal PIB port­fo­lio, which may im­pact on their mar­gins of PIBs in the sec­ond half.

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