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Bank of England keeps interest rate at 0.75%

September 19, 2019: The Bank of England on Thursday said it had voted to keep its main interest rate at 0.75 percent as it balances Brexit uncertainty and weak global growth.

The Monetary Policy Committee decided unanimously to hold borrowing costs at a regular meeting held Wednesday, the BoE said in published minutes.

"Since the MPC's previous meeting, the trade war between the United States and China has intensified, and the outlook for global growth has weakened," the Bank of England said.

It noted also that "shifting expectations about the potential timing and nature of Brexit have continued to generate heightened volatility in UK asset prices, in particular the sterling exchange rate".

Unlike the European Central Bank and US Federal Reserve which are both cutting rates, the BoE is sitting tight, also as inflation weakens in Britain.

"In the event of a no-deal Brexit, the exchange rate would probably fall, CPI inflation rise and GDP growth slow," the BoE said Thursday.


PKR stands firm against dollar

September 19, 2019 (MLN): Pakistani rupee (PKR) closed today's trading session relatively unchanged against the USD with the rate remaing stable at PKR 156.24

The rupee endured a relatively dull trading session with very little intraday movement, trading in a range of 16 paisa per USD showing an intraday high bid of 156.35 and an intraday Low offer of 156.23.

Within the Open Market, PKR was traded at 155.30/156.80 per USD.

Alternatively, the currency lost 55 paisa to the Pound Sterling as the day's closing quote stood at PKR 195.16 per GBP, while the previous session closed at PKR 194.61 per GBP.

Similarly, PKR's value weakened by 35 paisa against EUR which closed at PKR 172.84 at the interbank today.

On another note, within the money market, the State Bank of Pakistan (SBP) conducted an Open Market Operation in which it injected Rs.337.2 billion for 1 day at 13.36 percent.

The overnight repo rate towards close of the session was 13.60/13.75 percent, whereas the 1 week rate was 13.30/13.40 percent.

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Increased Islamic Banking penetration supports Pakistani banks’ profitability: Moody’s

September 19, 2019 (MLN): The State Bank of Pakistan released its latest Islamic Banking Bulletin on September 13, showing that Shariah-compliant assets had increased by 21% during the Fiscal Year 2019 to reach a market share of 14.4% of total system assets.

According to the report produced by Moody’s regarding Pakistan’s Islamic Banking Sector, a significant portion of Islamic banking customers come from populations that were previously unbanked, thus creating a new revenue source for banks. Additionally, the bulk of these deposits are low-cost, non-remunerated, Shariah-compliant that will boost banks’ interest income and margins.

The State Bank of Pakistan set a goal to increase Islamic assets to 20% of the market, with a focus on lifting structural and regulatory barriers and increasing awareness. In addition, the government is further supporting the growth of Islamic finance in Pakistan through regular sukuk issuances.

As of June 2019, there were five fully fledged Islamic banks in Pakistan, including MCB Bank Limited (B3 negative, b31) subsidiary MCB Islamic Bank Limited, as well as 17 banks with standalone Islamic branches including Allied Bank Limited (B3 negative, b3), United Bank Ltd. (B3 negative, b3), National Bank of Pakistan (B3 negative, caa1) and Habib Bank Ltd. (B3 negative, caa1).

With Pakistan's Muslim population reaching more than 96% of the country's total population and 79% of the population remaining unbanked, according to World Bank data, the potential for Islamic banking penetration is substantial.

As Islamic banking institutions attract more Shariah-compliant deposits, they will benefit from stronger profitability. Islamic banking products are attracting previously unbanked customers, creating new business opportunities for banks to grow their deposit base. Islamic deposits have grown 21% on a compound annual basis for the six-year period through June 2019, outpacing the 11% compound annual growth rate of all other deposit types.

In addition, Islamic deposits do not earn interest under Shariah law, thereby reducing interest expense and generating higher margins and profitability. The return on assets for Islamic banking institutions was 2.3% at the end of June 2019, versus an average of 1.6% for all banks in the system.

As part of the national strategy to increase financial inclusion, the Pakistani government is focusing on a series of initiatives targeting the growth of the Islamic finance industry. These initiatives include the adoption of global reporting standards and the introduction of a Shariah-compliant regulatory framework, such as easing initial capital requirements for Islamic banking subsidiaries, facilitating conversion into Islamic mode, introducing tax neutrality for Shariah-compliant banking and crafting exceptions for using the Karachi Interbank Offered Rate as a benchmark for pricing financing.

In addition, the government is further supporting the growth of Islamic finance through regular sukuk issuances. The Securities and Exchange Commission of Pakistan is also working towards enhancing liquidity management with the creation of an open market and auction platform for sovereign sukuk offerings.

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NML’s net earnings grow by 9% annually

September 19, 2019 (MLN): Nishat Limited (NML) has announced its financial results today for the year ended June 30th 2019, according to which it has posted its net profits of Rs.9.6 billion (EPS: Rs.22) , up by 9.19% YoY compared to last year net profit of  Rs.8.8 billion (EPS: Rs.20.72).

The company observed a significant growth in topline earnings by 13.32% due to depreciation of PKR which resulted in rise of selling price of products.

The gross profits of the company increased by 24.23% to Rs.16.89 billion to attributable to strong business performance.

Furthermore, the other income recorded a surge of 60.65% to Rs.3.4 billion YoY, owing to one-off exchange gains and given dividend income from portfolio companies.

PIBs: Further inversion in yield curve on cards

September 19, 2019 (MLN): In the latest Monetary Policy Statement (MPS), the State Bank of Pakistan (SBP), rather unsurprisingly, announced to keep the policy rate unchanged at 13.25% for the next two months.

Subsequently,  yesterday’s PIB auction was in line with secondary market yield, wherein significant decline in PIB cut-off yields was witnessed.

For 3-year PIBs, yield declined by 130 bps to 12.95%, for 5-year PIBs yield declined by 105 bps to 12.50% and for 10-year PIB, yield declined by 90 bps to 12.25%, suggesting that yield for PIBs are now below the current policy rate, and further inversion in yield curve is expected in September, highlighted in a research report by Ismail Iqbal Securities.

The Participation in the auction remained high as it saw bids for fixed-rate PIBs of PKR 698 billion against a target of PKR 125 billionn. Moreover, SBP accepted bids of PKR 164 billion for fixed rate PIBs which was 23% of bids offered.

Highest bids were seen in 3-year PIBs of PKR 346 billion out of which PKR 63 biliion (18%) were accepted, while for 5-year and 10-year PIBs, PKR 61 billion (35% of bids received) and PKR 40 billion (23%) were accepted, says the report.

Since PIB cut-off yields have come down, the shorter-term T-Bills yields continue to stay elevated, the report added.

On the other hand, policy makers also intend to attract foreign flows in debt securities by keeping higher rates on shorter tenor T- Bills.

Another research report by Spectrum Securities affrims the view by highlighting that since last PIB auction, the treasury market participants are seeming more bullish on govt. securities on the back of the expectations of interest rate cut going forward.

With regards to longer-term PIBs, the government’s unwillingness to borrow longer-term bonds due to expected decline in inflation rate in next couple of years, has created supply issue. In addition, as taxation on PIBs is higher than T-bills for non-resident companies, therefore, no major investment is expected in longer-term PIBs until taxation is relaxed for non-resident investors.

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