Pakistan’s Banking sector rises from the ashes after IMF deal

July 13, 2023 (MLN): The banking sector in Pakistan has left behind the dark days after being in the pit for so long, witnessing a remarkable rally in the last nine trading sessions since the signing of the Staff-level agreement of $3 billion with the International Monetary Fund (IMF) on top of other positive news inflows.

The Banking tradeable index (BKTI) which tracks the performance of 20 listed banks has gained 16.07% in the last nine trading sessions, outperforming the broader KSE-100 Index which has risen 10.88% in the same period.

The top performers in the banking sector are Meezan Bank Limited (MEBL), which has surged 30.96%, Faysal Bank Limited (FABL), which has jumped 17.74%, and Bank Alfalah Limited (BAFL), which has soared 16.14% since the market opened after the Eid-ul-Adha holidays.

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The banking sector, which accounts for about 21.13% of the KSE-100’s market capitalization, has been one of the main beneficiaries of the IMF deal, as the economy is expected to move towards stability with increasing Foreign Exchange Reserves and strengthening PKR.

BKTi Weekly time-frame chart

The aforementioned development comes at a time when Pakistan was struggling to meet its finances, with its foreign exchange reserves depleting rapidly.

To recall, as of June 30, 2023, the country's total reserves stood at $9.75bn.

Yesterday, the IMF executive board approved the 9-month Stand-By-Agreement (SBA) for Pakistan for an amount of $3 billion, with an immediate disbursement of $1.2bn to support the authorities’ economic stabilization program.

However, according to Bloomberg, the loans will allow the country to pay its debts through April 2024, more aid will be needed after that.

Apart from the IMF deal, the banking sector has also received a boost from other positive news inflows.

In the past three days, the State Bank of Pakistan (SBP) has received a $1.2bn immediate disbursement from IMF, a $1bn deposit from United Arab Emirates (UAE), and a $2bn deposit from Saudi Arabia.

Pakistan’s new SBA-supported program has started to pave new ways for financial support from multilateral and bilateral partners.

Investors’ confidence was also sparked when Fitch Ratings upgraded Pakistan's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'CCC' from 'CCC-' on July 10.

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