Decision of profit rate for saving deposits surprises market

OUR STAFF REPORTER

LAHROE - A mixed sentiment was witnessed at the local bourse during the week after SBP’s decision to keep the discount rate unchanged at 12 per cent. The decision was inline with market expectations; however the decision to raise the minimum profit rate to 6 per cent for savings deposits surprised the market somewhat. Resultantly, selective profit taking was evident in the market (mainly banks), nonetheless overall the KSE-100 gained 137 points (up 1.0 per cent WoW). Average volumes on the other hand were down 28 per cent WoW to 269m shares. Foreigners too maintained their interest in the market buying shares worth $8.1m shares. Samar Iqbal, equity dealer, at Topline Securities, said that cement and banking stocks remained the major supporter of the index on healthy earnings expectations of March quarter. On the other hand fertilizer stocks witnessed selling pressure amid gas curtailment and over supply scenario.

In its monetary policy statement (MPS) SBP unsurprisingly kept the discount rate at 12 per cent while emphasizing various economic challenges. Moreover, SBP also decided to increase the minimum rate on savings deposits to 6 per cent from 5 per cent currently. This triggered a negative trend among banking stocks as this is likely to hurt their Net Interest Margins. Furqan Ayub, at JS Capital said that the current account registered a surplus of $142m in March-12 compared to $184 million in March-11. The surplus came on the back of high remittances and some rise in foreign inflows. Nevertheless, elevated oil prices kept the cumulative 9MFY12 current account deficit at $3.1 billion.

DGKC, POL, FFBL and FFC announced their financial results this week. DGKC reported an EPS of Rs4.73 in 9MFY12, up 11.7xYoY. The impressive result came on the back of high cement prices. POL’s earnings grew by 19 per cent YoY to Rs39.44 owing to elevated oil prices. Conversely, FFBL posted a loss of Rs0.41/share while FFC’s earnings declined by 24 per cent YoY to Rs2.45/share as the availability of imported fertilizer at lower rate dampened the two companies’ profitability.

Experts said that latest sector data released by the SBP shows aggregate deposit growth have risen by 1 per cent during 1Q2012 while credit offtake, on an encouraging note, rose by 3 per cent during the same period. On spreads front, February number is down by 7bps MoM (21bps YoY) at 7.3 per cent - taking lieu from adjustment of KIBOR after the last DR cut in October 2011. Looking ahead at the first quarter results, we are likely to witness a moderate QoQ growth in interest income for the banking sector as cumulative earning assets have grown by 4 per cent while avg. KIBOR is down 15bps on a QoQ basis. Although, cumulative provisions have grown by 3 per cent QoQ to Rs392b, it is unlikely to pose a great risk to bigger banks mainly on account of their higher loan coverage ratio. We also do not rule out gains from equity investments as broader Index is up 21 per cent in 1Q. We maintain our ‘Market- Weight’ stance on the sector and flag xx as our preferred play.

After growing by an impressive 8 per cent in 4Q2011, industry wide deposits growth was fairly restricted to only a single ppt to Rs5.9trn ($65.2b). It is likely to be on account of lower deposit rates which have averaged at 5.87 per cent in 1Q (March number still not available) and window dressing of deposits at the year end (deposit are always inflated in December).

Encouragingly, credit appetite has picked up pace and cumulative industry wide gross advances have witnessed a decent growth of 3 per cent to Rs3.6trn ($39.8b). ADR grew by 147bps to remain flat at 62 per cent in March 2012. Investments, continued with its growing trend, witnessing a rise of 4 per cent in 1Q to Rs3.1trn ($34.1b).

The latest spreads data revealed by the central bank show a 7bps contraction on a MoM basis while it was down by 21bps on YoY basis to come in at 7.30 per cent in February 2012. As per the break-up, average lending rates are down 10bps MoM, whereas deposit rates were down by 3bps in February. Consequently, in 1Q2012 so far average spreads stand at 7.34 per cent in 1Q, down 25bps from last quarter. Going forward, with the DR expected to stay at the same level we do not see spreads improving in the short to medium term.

Total provisions rose by Rs12bn in 1Q, compared to an average rise of Rs10bn in the previous four quarters. Although, this is a rough number it is likely to be a concern for the smaller banks. However, for bigger banks with high coverage and relatively better asset quality, provisioning expenses are likely to remain relatively subdued.

LAHROE - A mixed sentiment was witnessed at the local bourse during the week after SBP’s decision to keep the discount rate unchanged at 12 per cent. The decision was inline with market expectations; however the decision to raise the minimum profit rate to 6 per cent for savings deposits surprised the market somewhat. Resultantly, selective profit taking was evident in the market (mainly banks), nonetheless overall the KSE-100 gained 137 points (up 1.0 per cent WoW). Average volumes on the other hand were down 28 per cent WoW to 269m shares. Foreigners too maintained their interest in the market buying shares worth $8.1m shares. Samar Iqbal, equity dealer, at Topline Securities, said that cement and banking stocks remained the major supporter of the index on healthy earnings expectations of March quarter. On the other hand fertilizer stocks witnessed selling pressure amid gas curtailment and over supply scenario.

In its monetary policy statement (MPS) SBP unsurprisingly kept the discount rate at 12 per cent while emphasizing various economic challenges. Moreover, SBP also decided to increase the minimum rate on savings deposits to 6 per cent from 5 per cent currently. This triggered a negative trend among banking stocks as this is likely to hurt their Net Interest Margins. Furqan Ayub, at JS Capital said that the current account registered a surplus of $142m in March-12 compared to $184 million in March-11. The surplus came on the back of high remittances and some rise in foreign inflows. Nevertheless, elevated oil prices kept the cumulative 9MFY12 current account deficit at $3.1 billion.

DGKC, POL, FFBL and FFC announced their financial results this week. DGKC reported an EPS of Rs4.73 in 9MFY12, up 11.7xYoY. The impressive result came on the back of high cement prices. POL’s earnings grew by 19 per cent YoY to Rs39.44 owing to elevated oil prices. Conversely, FFBL posted a loss of Rs0.41/share while FFC’s earnings declined by 24 per cent YoY to Rs2.45/share as the availability of imported fertilizer at lower rate dampened the two companies’ profitability.

Experts said that latest sector data released by the SBP shows aggregate deposit growth have risen by 1 per cent during 1Q2012 while credit offtake, on an encouraging note, rose by 3 per cent during the same period. On spreads front, February number is down by 7bps MoM (21bps YoY) at 7.3 per cent - taking lieu from adjustment of KIBOR after the last DR cut in October 2011. Looking ahead at the first quarter results, we are likely to witness a moderate QoQ growth in interest income for the banking sector as cumulative earning assets have grown by 4 per cent while avg. KIBOR is down 15bps on a QoQ basis. Although, cumulative provisions have grown by 3 per cent QoQ to Rs392b, it is unlikely to pose a great risk to bigger banks mainly on account of their higher loan coverage ratio. We also do not rule out gains from equity investments as broader Index is up 21 per cent in 1Q. We maintain our ‘Market- Weight’ stance on the sector and flag xx as our preferred play.

After growing by an impressive 8 per cent in 4Q2011, industry wide deposits growth was fairly restricted to only a single ppt to Rs5.9trn ($65.2b). It is likely to be on account of lower deposit rates which have averaged at 5.87 per cent in 1Q (March number still not available) and window dressing of deposits at the year end (deposit are always inflated in December).

Encouragingly, credit appetite has picked up pace and cumulative industry wide gross advances have witnessed a decent growth of 3 per cent to Rs3.6trn ($39.8b). ADR grew by 147bps to remain flat at 62 per cent in March 2012. Investments, continued with its growing trend, witnessing a rise of 4 per cent in 1Q to Rs3.1trn ($34.1b).

The latest spreads data revealed by the central bank show a 7bps contraction on a MoM basis while it was down by 21bps on YoY basis to come in at 7.30 per cent in February 2012. As per the break-up, average lending rates are down 10bps MoM, whereas deposit rates were down by 3bps in February. Consequently, in 1Q2012 so far average spreads stand at 7.34 per cent in 1Q, down 25bps from last quarter. Going forward, with the DR expected to stay at the same level we do not see spreads improving in the short to medium term.

Total provisions rose by Rs12bn in 1Q, compared to an average rise of Rs10bn in the previous four quarters. Although, this is a rough number it is likely to be a concern for the smaller banks. However, for bigger banks with high coverage and relatively better asset quality, provisioning expenses are likely to remain relatively subdued.