January 15, 2020 (MLN): The growth of the banking sector has revitalized with the recuperation of macroeconomic conditions and is projected to accelerate further with increasing economic activities.
A research report by Spectrum Research says the expected decline in interest rates expected to accelerate advances for working capital and consumer financing.
On the other side, expected cut in Policy Rate during 2020 would improve the yield of investments which bank have longer tenor PIBs and also reduce non-performing loans parallel to interest rate decline, the report added.
Since November 2018, State Bank of Pakistan (SBP) has raised the policy rate by 325 bps to 13.25%, as a result, bank deposits have seen healthier growth as they increased by 10%YoYto PKR14,632 billion, Advances increased by 3%YoYto PKR8,158 billion, while investment increased by 16%YoY in 2019.
With regards to sector’s earnings which are expected to remain healthy on better assets allocation as banks having a larger portion of investments in longer tenor instruments and growth in advances along with declining Non- Performing Loans (NPLs) likely to push NIMs. The ongoing economic stabilization and lower interest rate environment will push NPL to a minimum level.
Independently, in 2019, MCB emerged as the best performer among its peers in terms of highest Return on Equity (ROE), Capital and Saving Account (CASA), Capital Adequacy Ratio (CAR) and highest dividend payout in the industry, the report underscored.
Going forward, MCB would be the beneficiary of a policy rate fall, as the bank has a huge investment in long term PIBs. Furthermore, the lower interest rate will also compel the bank to increase the proportion of low-cost deposits (current account deposits) in order to maintain NIMs, which are expected to settle at 4.9% in CY19 and 5.2% in CY20, the report concluded.
