Lower provisioning cost, higher capital gains to lift banks’ earnings

April 14, 2021 (MLN): With a parade of corporate earning results, banks are likely to report an increase in net profits for the first quarter ended March 2021.

An uptick in economic recovery is set to aid private banks’ earnings in 1QCY21. However, the year-on-year (YoY) financial performance may be largely flat as it is expected that net interest income to be pressured amid falling policy rates.

An AKD securities report estimates MCB’s net profit after tax to stand at PkR6.5bn (EPS: PkR5.48), flat compared to the same period last year. However, on a sequential basis, it is expected to jumpy by 8.0%.

The uptick in earnings on a sequential basis mostly relates to potentially lower provisioning expense and high capital gains as indicated by banks’ net sell of US$21.8mn in 1QCY21 against net sell of US$15.3mn in the previous quarter. Overall, net interest income is expected to decrease marginally (down 5.5%QoQ) in the current quarter with the full repricing of assets concluded in the 4QCY20 whereas non-funded income is expected to jump 16.5%QoQ. Along with the results, the bank is expected to announce a dividend of PkR5 per share, Hamza Kamal, Research Analyst at AKD Securities wrote.

As per the projections put forward in the report, Meezan Bank Limited (MEBL) is slated to announce its 1QCY21 result on April 20, 2021, where it is anticipated that the bank to report earnings of PkR4.1 per share against PkR3.5 per share in the same period last year, signifying an increase of 17.7%YoY. The result could be accompanied with a dividend of PkR1 per share whereas the bonus issue could also be a part of the announcement as seen in previous years.

On a sequential basis, earnings are likely to grow by 38.1% largely attributable to lower provisioning expense in the current quarter (1QCY21E: PkR2.0bn compared to PkR4.0bn in the previous quarter, traceable to a full classification of a certain party).  As per the report, the net spread margins are expected to face marginal attrition compared to 4QCY20 margin of 5.1%, taking indication from the trend in revaluation surplus on investments (PkR8.5bn in 4QCY20 vs. PkR9.8bn in 3QCY20) while net interest income is expected to register an increment of 4.6%QoQ — credited to balance sheet volumetric growth.

Among commercial banks, United Bank Limited (UBL) is likely to strengthen its position further. The bank is scheduled to announce its 1QCY21 results on April 21, 2021, where it is likely to post earnings of PkR6.6bn (EPS: PkR5.5) for the period vs. PkR4.9bn (EPS: PkR4.0) in the same period last year.

On a sequential basis, earnings are likely to grow by 27.5% on the back of potentially higher capital gains attributable to power sector stocks which occupy 35.0% of total listed equity investments of the bank (EPS contribution: PkR1.1), and lower administrative expenses (down 11.6%).  To highlight, the banking sector sold US$11.5mn in the power sector culminating in a share of 52.7% of total net sales. Further, while the research has built-in a cost of provisioning of 0.4% into estimates, a surprise cannot be ruled out given favorable movement in stock of overseas NPLs in US$ terms in the previous quarter. Together with the result, the research expects the bank to announce a dividend of PkR2.5 per share.

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Posted on: 2021-04-14T13:05:00+05:00