Pakistan Banking Sector Result Preview- Banks to post decent 2Q20 results despite of high provisioning


-We think the key issues to look out for in 2Q20 results will be 1) The sensitivity of core income to the interest rates cut and 2) rise in provisions.

In 1Q2020, provisions for the sector increased by 8.9x Y/Y. We expect this trend to continue and provisioning expense to remain high in 2Q2020.  Moreover, fee income is likely to remain under stress on account of closure of branches and lower number of investment banking transactions. But in our view, the overall profitability will be supported by higher core income due to early repricing of deposits and realization of gains on sales of securities.

-Banks will not payout any divided in 2Q2020 as per SBP directive in order to enhance their Capital Adequacy Ratios (CAR).

-Overall, gains on investment portfolio, both bond and equity as well as higher remittance inflows, should be the key positive drivers.

-We think most investors will focus on commentary on banks on the new rules which require greater lending by the banks to the construction sector.

-There is lack of visibility on credit quality and this will not be clear until the State Bank’s extension on recognition of NPL remains. We think given this uncertainty the banks will underperform the wider market and continue to trade on depressed multiples.

Please find attached the detailed report.

Kasb Research
+92 21 35171465

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