AsiaNet-Pakistan Premier Editorial Content and Press Release Distribution Service
Karachi, July 22, 2013 (PPI-OT): Since Dec 31’12, the Big-6 banks have on average gained 52%, outperforming the banking sector by 10% and the broader market by 13% in the process.
According to AKD Securities at the same time, top-tier medium-sized banks such as SCBPL and NIEBL have each gained 30%CYTD. AKD Securities attributes this valuation rerating to 1) an overdue price performance catch-up rally. 2) consensus that the next move in the DR will be an upward one, 3) improving asset quality and 4) some expectations that the SBP may reduce the rate floor on savings deposits. Within this backdrop, there are several banks that have actually lost market capitalization over the last 6-7 months.
In this regard, AKD Securities argues that the aforementioned reasons why the larger banks have rallied also apply to the medium/small banks space and that positions may selectively be built up in the latter. While AKD Securities flags that stock-specific issues remain (e.g. poor asset quality/relatively low capital strength), banks that trade at deep discounts to book and that have yet to rally, thereby potentially outperforming over the near-term, include AKBL, JSBL and BIPL, among others.
Dissecting the rally: Since Dec31 12, banking sector gains of 42% have exceeded the market’s 39%CYTD return with the Big-6 banks (-i-52%CYTD on average) at the centre of this valuation rerating. In addition to what AKD Securities perceives as an overdue price performance catch up-rally, AKD Securities flags firm expectations that the monetary easing cycle is at an end (inflation has bottom out; IMF program imminent), improving asset quality (systemic NPL stock poised to come off) and anticipation that the regulator may adopt a more accommodative approach (possible reduction in savings a/c rate floor).
Selective opportunities: Typically, the larger, more profitable banks tend to re-rate first followed by medium and finally by the smaller banks. In this regard, the Big-6 banks have on average returned 52%CYTD, medium banks (PkR100bn