Morning Briefing for July 20, 2012 – Standard Capital

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Karachi, July 20, 2012 (PPI-OT): Best banks in Pakistan based on NIMs

Today Standard Capital would synthesize best Pakistani bank based on Net Interest Margin (NIM).

NIM is considered one of the most important tools to judge any bank’s profitability yardstick.

According to Standard Capital, in Pakistan, NIM of banks usually on a higher side as against other regional as well as global averages since Pakistani banks usually sit on inflationary spreads i.e. they pay low returns to depositors who have little avenues for investments and hence they are bound to keep their hard earned money in a safe deposit of the bank. However, banks usually give loans in certain spheres at a very high rate in the region and thus earn massive spreads at a time when other sector of the economy suffers due to low credit penetration.

Banking sector NIMs
Symbol	Exp P/E	PBV	ROE	ROA	Div Yield	NIM
SCBPL	7.3	0.9	10.0	1.5	8.6	8.8
MCB	7.7	1.9	21.9	2.9	6.4	8.2
HBL	6.2	1.4	20.4	1.9	6.1	6.7
UBL	5.8	1.4	19.6	1.9	8.5	6.5
MEBL	7.4	1.8	24.6	1.7	3.4	5.9
ABL	5.3	1.4	23.4	1.9	7.3	5.7
NBP	4.2	0.6	13.3	1.5	16.3	5.5
BAFL	5.1	1.0	13.6	0.7	9.7	5.1
BAHL	6.0	1.6	22.8	1.2	8.6	4.2
FABL	8.5	0.5	6.7	0.4	not paid	3.8

Standard Capital has a list of banks that thrive on Pakistan market with extremely higher NIMs given variety of reasons.

In that list, an old foreign player Standard Chartered (SCBPL) has got higher NIM of 8.8% given the bank’s history of penetrating into the high-end consumer segment over the years. Moreover, SCBPL has got exposure against some of the big million Cs where they charge above normal charges and hence that bank maintains higher NIMs.

MCB has always been accused of low CASA i.e. low deposit cost which is below 5% – 6% during previous decade wherein bank only concentrate on greater risk management and hence maintain above 8% NIMs. The propensity of MCB Bank’s profitability is mainly due to that. At present MCB is available at a lower CY12PE of 7.7x and hence offers a better bet.

Among others, HBL and UBL is also on the radar with NIMs of 6.7% and 6.5% respectively given their exposure in every segment such as overseas, textiles, agriculture, public sector corporations and million Cs alike. Standard Capital likes HBL and UBL given their lower CY12PEs.

NBP, being a gigantic bank, maintains a very attractive NIM of 5.5% for quite a long time and hence most undervalued. NBP is currently working to rejuvenate its strategy towards trade finance and low CASA and hence best bet for future. NBP is one of the most undervalued given its extremely low PBV of 0.6x.