LAHORE - Though banking spreads recovered marginally to 6.27 per cent (Apr-May 2013) after touching multi-year low of 6.21 per cent in 1Q2013. Banking sector is still facing difficulties as there is low credit off take and minimum floor on saving deposit rates also has compounded pressure on spreads. However, support to the earning may emerge from low provisions and capital gains. 

As per SBP data, scheduled banks recorded reversal of provisions by Rs1.8bn in 2Q2013 compared to Rs2.8bn provisions in 1Q2013. Further, NCCPL data reveals that banks were net seller with Rs6.4bn in 2Q2013 versus net buy of Rs3.3bn in 1Q2013. As the KSE 100-index has also gained by 15 per cent in 2Q2013, experts expect banks to book sizeable capital gain while reversal in provision is likely to support bottom-line. Incorporating all, we expect overall banking profitability may increase by 4-5 per cent in 2Q2013 compared to the previous quarter.

Regarding fertilizer companies, experts said that on the back of rejuvenated sales of both urea (up 3 per cent to 1.4mn tons) and dap (up 47 per cent to 208k tons) and stable prices, fertilizer sector profits are likely to be up 4-5 per cent. Amongst Topline universe companies, earnings of FFC are expected to shrink in 2Q213 mainly due to absence of other income from its subsidiary FFBL. Remaining 4-5 per cent profit growth impetus is to be provided by Engro Corp, which is likely on the back of one time gain. Cumulative profitability of the fertilizer sector will be up 8-10 per cent in 2Q2013. They said that market performance in 4QFY13 was buoyed by smooth transition of power and foreign buying.

With successful end to political transition, market participants are now eagerly waiting to find out how different sectors performed in 4QFY13 as the result season is about to kick off.