Sector Update- Banks

AsiaPac | Pakistan | Equities

Financial Institutions | Commercial Banks

Wednesday, 08 Jan-2014

Declining ADR in CY13 to hinder banking sector profitability

Deposits of Scheduled banks increase by 12.7%YoY
According to the data released by SBP, Deposits of scheduled banks
surged by 12.7%YoY to stand at PkR7, 529bn in CY13 as compared to
PkR6, 683bn recorded in CY12. It is important to note that SBP recently
linked minimum deposit rate (MDR) with Reverse Repo rate,
Consequently, MDR increased from 6% in Sep-13 to currently 7% in Jan14. Due to the increase in MDR, total deposits of the scheduled banks
increased by 5.7% in last quarter as compared to growth of 6.6% in
9MCY13.
Advances surprised in last quarter despite increase in DR.
Advances of scheduled banks remained flat during most of the CY13
and in fact depicted decline of 0.7% in 9MCY13. However advances
posted surprise g6rowth in last quarter and reached PkR241bn,
representing growth of 5.6%YoY basis and 6.3%QoQ. This came at a
time when SBP increased DR twice in Sep-13 and Nov-13 to 9.5% and
10% respectively.
As per the SBP numbers available with us till Nov-13, non - Govt sector
(Inc. private sector) credit off-takes grew by PkR184bn in 4QCY13
increasing by 5.7%. At times when Policy rate was going down in
9MCY13, credit to Non - Govt sector portrayed decline of 2.6%.

QoQ Growth
10.0%
8.0%
6.0%

4.0%
2.0%
0.0%
-2.0%

1QCY13

2QCY13

3QCY13

4QCY13

-4.0%

-6.0%
-8.0%
Advances

Deposits

Investments

Source: SBP, Alt- Research

PkR (bn)
4,100

Credit Off - take

40.0%

3,900

PkR (in bn)

Advances
Deposits
Investments
Non- Govt Sector credit off-take
Govt Sector credit off-take
ADR
IDR

CY12 1QCY13 2HCY13 9MCY13 CY13

3,857 3,873 3,869
3,831 4,071
6,683 6,777 7,316
7,125 7,529
3,889 4,024 4,129
3,873 4,070
3,335 3,365 3,217
3,248 3,431
440
367
508
487
442
57.7% 57.2% 52.9% 53.8% 54.1%
58.2% 59.4% 56.4% 54.4% 54.1%

*Credit Off- takes updated till Nov-13 : Source : SBP, Alternate research

Investments increase in 4QCY13 as expected.

We anticipated increase in investments of scheduled banks after the
increase of 100bps in DR by SBP. SBP In the last few auctions govt raised
handsome amounts from banks through auction of 3M and 6M treasury
bills. As a result, investments showed growth of 5.07%QoQ(PkR196bn)
to stand at PkR4,1trn.
Going Forward
We expect SBP to increase DR further by 50bps in CY14 and as a result
Deposits are further expected to grow after linking of MDR with DR.
However, growth in advances will not outpace growth in deposits in
absence of uncertain investment climate coupled with unresolved
energy issues. However, in long run, we expect advances to increase as
the new Govt continues to address energy problem and introduce
business friendly policies.

30.0%

3,700
20.0%

3,500
3,300

10.0%

3,100

0.0%

2,900

-10.0%

2,700
2,500

-20.0%
1QCY13 2QCY13 3QCY13 4QCY13
Non- Govt Sector

Govt Sector

Non- Govt Sector

Govt Sector

Source: SBP, Alt- Research

Analyst
Umesh Kumar
+92 21 3432-6919
u.kumar@alt-research.com

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