Banks are likely to post an earnings growth of 72 percent YoY in 4Q2023, primarily driven by higher Net Interest Income (NII).
According to Topline Securities, the NII of the banks in its portfolio is likely to increase by 61 percent YoY to Rs. 324 billion in 4Q2023 on the back of a rise in asset yields. 6M Kibor/T-Bill /PIB rates have increased to 21.88 percent/21.68 percent/17.26 percent respectively (up around 300-550 bps on a YoY basis) in 4Q2023.
Profit growth
In 2023, the Topline Bank Universe is expected to record a profit of Rs. 350 billion up 94 percent YoY, driven by a sharp increase of 600 bps (from 16 percent to 22 percent ) in interest rates. The effective tax rate of the universe is expected to be 50 percent in 2023 compared to 52 percent in 2022.
Despite no hike in interest rates on a QoQ basis, NII is expected to increase by 16 percent QoQ, primarily attributed to the repricing of assets which comes with a time lag.
Non-Interest income of the Topline Universe is likely to post growth of 15 percent YoY and 21 percent QoQ in 4Q2023 likely due to higher inflation, with a major contribution expected from fee & commission income.
Total provisions of the Topline universe are likely to clock in at Rs. 7 billion in 4Q2023 vs Rs. 31.5 billion in 4Q2022 and provision reversal of Rs. 3.1 billion in 3Q2023. To recall last year in 4Q2023, many banks booked higher provisions on account of Pakistan Eurobonds.
Overweight Maintain; Top Picks MEBL, UBL, and MCB
In the Topline universe, MEBL is likely to record the highest per-share earnings of Rs. 16.5/share, followed by MCB of Rs. 16.4/share and HBL of Rs. 11.8/share in 4Q2023.
The report’s top picks in the sector are Meezan Bank (MEBL), United Bank (UBL), and MCB Bank (MCB).
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Very nice organized sector is showing more profit that means more income tax earnings for exchequer. Give them more incentives to boost their profitability. Take decisions on banks stuck up loans. Banks have charge on current/ fixed assets and on top of that personal guarantees from owners.
Defaulters are paying hefty fees to lawyers to delay their cases. Check reasons why defaulters cases are pending for decades. Anything recovers from defaulters will straight add to bottom line, that means more taxation for exchequer.
Honourable Chief justice must see this aspect and recommend reforms to legislation.
We want to get rid of default culture. Anybody borrowing from banks must think twice before getting loan. This is the way that only genuine borrower will come to bank. Honest borrower don’t have to pay the loan default cost of business people who have no desire to work.