LAHORE: The country’s six big banks are going to post high growth despite a 350bps decline in policy rate during 2015, claimed a new report.
These banks have invested (34% of total deposits) in high yielding long term Pakistan Investment Bonds (PIBs). According to statistics, the 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. 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.
Topline’s analysts have anticipated in the report that capital gains to grow by 79% to Rs37 billion in 2015. Banks have aggressively realized capital gains on PIBs and equities in 2015. They said that big banks are expected to report record profits of Rs130b in 2015, up 12% YoY. The top 6 banks in terms of deposits, including Habib Bank (HBL), National Bank (NBP), United Bank (UBL), MCB Bank (MCB), Allied Bank (ABL) and Bank Alfalah (BAFL), represent 63% of the total industry deposit, analysts added. In 9M2015, big banks had reported capital gains of Rs30 billion in 9M2015, up 109% YoY.
Report added that 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.
Private sector credit has already started depicting improvement. 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.
Despite sharp fall in interest rates and big PIB maturities expected in 2016, banks still trade at attractive multiples. Banks are currently trading at attractive forward PE of 7.2x and PBV of 1.2x and ROE of 16% as against PE of 11.7x and PBV of 2.6x and ROE of 19% during high growth period (2007-08). Banks are also offering attractive dividend yields of 8% higher than the prevailing 6-month kibor rate of 6.3%.
