Karachi, March 25, 2022 (PPI-OT): Pakistan Banks: CY21 Earnings Review and Outlook

CY21 closed with AKD Banking universe posting NPAT of PkR282.3bn, flat YoY – inclusive of penalty on NBP’s US branch of US$55mn (PkR9.8bn) as a result of compliance weakness. For 4QCY21, earnings stood at PkR58.7bn, down 22.1%QoQ primarily a result of NBP Penalty and higher effective tax rate which stood at 40.0% compared to 33.5% in the previous quarter.

AKD Private Banking universe witnessed its infection ratio declining to 4.6% – the lowest level in history – on account of strong advances growth in the final quarter of CY21, +13.0%QoQ.

The banking industry has performed inline with KSE-100-indicative of risk-averse behaviour of investors taking precedence over fundamentals of the sector i.e. stronger dividend payouts and exposure to interest rate cycle.

We believe value will be unlocked in the sector where slower sales prospects for manufacturing sector and macroeconomic uncertainty elicits a general shift in investor preference from growth stocks to value. Earnings of the sector should continue to remain strong with aggressive interest rate hikes in 4QCY21, transpiring into core income and possibly keeping payouts robust.