AKD Securities Limited Equity Research – Daily Report

Karachi,
July 11, 2019 (PPI-OT): Pakistan Banks: Deposit growth could be an uphill
battle

FY19
closed with total deposits of the banking industry standing at PkR14.4trn,
+10.7%YoY vs. 9.0%YoY recorded in the previous year. Deposits surged by PkR961bn
(+~5% of money supply) during the last days of Jun’19 that could be attributed
to asset declaration scheme but FY-end phenomenon also likely played its part.

We
expect relatively slow single digit growth of 9.1% (CAGR) in deposits over
CY19-21F vs. 12.8% in CY15-18 owing to, i) higher interest rates potentially
impacting money supply , and ii) gov’t restricting its borrowings from the
central bank.

Within
our Banking universe, the big-5 can leverage their wide branch network to
maintain deposit growth, where amongst mid-tiers, MEBL and BAHL look to realize
higher deposit growth due to recent aggressive branch expansion while BAFL’s
consolidation efforts could dent its deposit growth.

High
interest rate environment is yet to reflect on deposit composition of our
banking universe (1QCY19 CASA has remained stable at 78.7% vs. 78.6% in Dec’18)
where we expect CASA to drop 2-6ppts. going forward across our universe
considering i) banks doing-away with ‘selected deposit’ strategy, and ii)
potential switching from Saving Accounts (SA) towards Fixed Deposits (FD) in a
high interest rate environment.

From an
investment perspective, while valuations our enticing (CY19F P/B: 1.05x) we
continue to advocate for at least 2y investment horizon and balancing risk with
returns where our liking is weighted towards MCB (TP: 224.7/sh) and MEBL (TP:
115.8/sh).

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