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July 26, 2021 (MLN): The financial results of banking sector is expected to announced in the last week of July wherein lower capital gains (CG) and higher provisioning to hit profitability in 2QCY21.

With the loan deferment scheme having expired last month, banks may book relatively higher provisioning as compared to the subdued amounts that were seen last quarter.

According to Taurus Securities, the overall provisions will likely to increase by 1.4x on a sequential basis mainly on account of losses booked in relation to their exposure to a distressed oil marketing company.

Net Interest Income of banks is expected to depict a flattish trend, with asset repricing impact having fully reflected. Healthy volumetric growth in deposits is likely to support the banks’ balance sheets, with deposits posting a staggering 7% QoQ uptick, as per the banking sector preview by Arif Habib Limited (AHL).

Non-Funded income of banks is likely to support earnings with fee income expected to remain healthy this quarter attributable to higher trade volumes and robust economic activity, while banks may also book capital gains on equities as well as fixed income instruments due to expectation of the monetary tightening cycle initiating soon. release in next few days, a report said.

As per estimations made by BMA Capital, it is expected that the profitability of the banking sector will likely to decline by 17% YoY and 15% QoQ to reach Rs36.7bn during 2QCY21. However, the deposit growth continues to remain healthy, up by 15.2% YoY.

on a YoY basis, the slowdown in profitability of the sector on the back of lower interest income, declined by 12% YoY and non-funded income, dropped by 19% YoY, as a result of interest rate cuts and rationalized capital gains respectively.

On a sequential basis, Net Interest Income (NII) of the sector to expand by 4% QoQ due to swelling investment income, which has increased by 27.2% YoY to Rs13.5 trillion.  however, lower NFI plunged by 20% YoY as a result of lower capital gains and greater provisioning charge will likely weigh down on profitability.

With regards to the projections put forwarded in the report, HBL will post earnings per share (EPS) of Rs4.75 in 2QCY21, drop by 37 YoY and 16% QoQ. The decline in earnings is owed to lower non-funded income as a result of decline in capital gains and streamlined fee and forex income. Greater provisioning charge and higher operating expenses are also expected to dent earnings however, lower tax charge ETR of 41% in 1Q will likely provide some respite. Furthermore, weakening PKR in the outgoing quarter, depreciated by 3.19% QoQ is expected to put pressure on forex income as a result of the open USD position.

It is expected that a mild 3.8% increase in admin expenses to Rs25.1bn. Total provisions for the 2QCY21 are expected to clock in at Rs2bn. Along with the result, HBL will likely pay dividend of Rs1.75 per share.

With regards to UBL, the projected EPS would be around Rs4.50, declined by 14% YoY and 26% QoQ. The reduction in earnings despite incline in NII, owed to greater investment income, is expected on the back of lower NFI, higher admin expenses and greater provisioning charge. It is expected that NFI to decline due to milder capital gains worth Rs1.9Bn in 1Q and slight decline in fee income. Given the scenario, it is assumed that bank will likely make a pay-out of Rs3 per share.

The earning per share of MCB would likely clock in at Rs5.68 in 2QCY21, declined by 1%YoY and 4% QoQ. Meanwhile, the mild decline in earnings is also anticipated due to higher provisioning charge (reversals of Rs213mn in the previous quarter) and slight decline in NFI as a result of lower fee income and capital gains. Admin expenses are forecasted to inch up slightly to Rs10.3bn from Rs10.1bn in 1Q. “As for provisioning, we have assumed a charge of PKR 1bn.”, the report noted.

Given this, the bank will likely maintain its dividend pay-out of Rs5 per share this quarter.

With respect to MEBL, it is expected that the bank to report an EPS of Rs3.79 in 2QCY21, witnessing a drop by 13YoY and 12% QoQ. 4.1% acretion on quarterly basis is expected in net spreads however, softer NFI, higher provisioning charge and greater admin expenses are forecasted to weigh down on the bottom-line. Decline in NFI is expected to emanate from lower fee income and streamlined forex income while material change has not been assumed in capital gains. With regards to provisioning, charge of Rs1.3bn for the quarter is assumed while the bank will likely deliver a cash pay-out of Rs1.5 per share.

It is anticipated that ABL to report an EPS of Rs3.45 in 2QCY20, down by 14% YoY and 4% QoQ. A slight decline in earnings to emanate from milder capital gains and higher admin expenses due to higher compensation expense is expected. On the provisioning side, ABL to pay Rs0.5bn for the bank compared to a reversal of Rs139mn in the previous quarter. It is assumed that the cash pay-out to reach Rs2 per share.

Based on estimations, the projections made by BMA Capital further stated, “BAHL to report an EPS of Rs3.62 in 2QCY21, declined by 8% YoY and 12% QoQ. NII will likely surpass Rs14bn on the back of healthy investment income and improving CA ratio. However, NFI is expected to slow down to PKR 2.9Bn due to streamlined fee income.”

On the provisioning front, a charge of Rs640mn is expected while admin expenses to reach Rs9.7bn. Moreover, no interim pay-out from the bank is anticipated.

Estimations further indicated that EPS by BAFL to clock in at Rs1.29 in 2QCY21, dipped by 17% QoQ and 34% YoY. The sequential decline in earnings is owed to streamlined capital gains worth Rs 1.1bn in the last quarter, normalized tax charge (only 35.4% in 1Q) and higher provisioning charge. However, surge in NII to PKR 11bn is forecasted to provide some respite to the bottom-line. Provisioning charge of Rs1bn for the bank is projected while there is no interim pay-out expectation.

As far as the investment books are concerned, “Banks are increasing exposure on the shorter end of the yield curve which would investment to expand, as they prepare for the monetary tightening cycle. IDR of the sector has inched up to 72.8% as of Jun’21 compared to 64.6% in Dec’20, with investments rising 13% CYTD.

Loan growth has managed to pick some pace with advances up 6% CYTD while ADR continues to remain sluggish, clocking in at 47.2%. Deposit growth has remained aggressive in line with expansion in broad money in the economy, with deposits of the sector posting a 9% jump CYTD and a staggering 15% YoY jump during FY21”, the report by AHL noted.

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July 26, 2021 (MLN): The State Bank of Pakistan (SBP)’s Monetary Policy Committee (MPC) is scheduled to convene tomorrow i.e., July 27, 2021, to announce Monetary Policy for the next two months.

According to the market participants, amid fear of limiting economic activities due to surge in Covid-19 cases, the MPC of the State Bank is likely to maintain the status quo at its next monetary policy meeting and keep real interest rates below zero on a forward-looking basis as an extraordinary need for liquidity and low financing cost is required yet again to support the economy. Moreover, inflation is likely to remain manageable in the coming months due to high base effect along with stable oil prices on the local front which may also refrain the MPC from tinkering with the interest rate.

To recall, the Central Bank has kept the policy rate unchanged at 7% for the last 13 months to support growth in the wake of COVID-induced lockdown. The expectations of unchanged policy stance are based on SBP's forward guidance from last MPS wherein it stated that “In the absence of unforeseen developments, the MPS expects monetary policy to remain accommodative in the near term, and any adjustments in the policy rate to be measured and gradual to achieve mildly positive real interest rates over time.”

Since the last Monetary policy announcement, it has been noticed that the continued spell of the Current Account surplus has come to an end, posting the Current Account deficit (CAD) of $1.64bn in Jun’21 compared to the deficit of $632mn, showing a growth of 160%MoM. Despite rise in remittances numbers by 8%MoM in Jun’21, the reason behind the rise in the Current Account deficit was mainly the rise in Trade Deficit which ballooned by 35%MoM to $3.83bn compared to May’21 figures. This rise in Trade Deficit was mainly the reason of the rise in imports which rose by 28%MoM to $6.32bn compared to $4.95bn in May’21.

Meanwhile, it is important to note that the $1.6bn current account deficit included some year-end one-offs. Normalizing for these one-offs would give a figure of around $1.0bn and if CAD remains at this level during Q1FY22 given higher international commodity prices and robust domestic demand, it is expected that the SBP would reconsider its stance at the MPC meeting in Sept’21. For the time being, SBP would use exchange rate to rein in imports, and immediate pressure on the financial account is not anticipated given ample FX reserves, a report by Foundation Securities cited.

Conversely, on yearly basis, CAD remained at $1.852bn in FY21 compared to $4.449bn inFY20.

In addition, Senior Economist Muzammil Aslam expected SBP to give the signal of tight policy in tomorrow’s meeting to counter imbalances. According to him, commodity prices in the international market will remain elevated in the near term which suggests that inflationary pressures will persist in the coming months. Moreover, PKR has depreciated over 4% against USD since May’21. Further depreciation in Rupee will also lead to inflationary pressures going forward by raising import bill as during July’21, Rupee-Dollar parity was fairly weak despite ample forex reserves.

Headline inflation during FY21 averaged at 8.9% YoY compared to 10.77% YoY in FY20. During Jun’21 inflation has notably declined by 24bps MoM compared to rise of 10bps MoM in May’21, mainly due to decline in the Food index by 1.8% MoM in Jun’21. Looking ahead, PKR depreciation against USD could create hurdles in the coming months. Moreover, an upsurge in food prices due to supply constraints and hike in energy tariff as per IMF requirements are also threats for inflation.

On the money market front, inverted money market yields also indicating a status quo in the upcoming MPC meeting. According to the report by Shajar Capital, robust participation in the T-bill auction during the last two months of FY21 has been witnessed. In the secondary market, yields declined by 16bps and 12bps respectively for the 3M and 6M tenors as of 19th Jul’21. The latest auction of 15th Jul’21 has raised Rs693bn for SBP against the target amount of Rs700bn.  As per the report, cut-off yields have notably declined by 9bps and 5bps respectively for the 3M and 6M tenors. During the last two months, SBP has raised more than Rs4,31trn from Money Market in order to meet budgetary expenditures for the year FY21.

A poll conducted by Topline Securities also directing towards unchanged policy stance in tomorrow’s meeting as about 89% of the participants are expecting no change in the Policy Rate in the upcoming MPS, 7% of the participants expect an increase of 25bps in the Policy Rate, while 4% of the participants anticipate an increase of 50bps.

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July 26, 2021 (MLN): Pakistan’s Stock market witnessed a volatile trading session today, shedding 120.39 points or 0.25% to close at 47,672.68 level.

The trading opened on the positive note scoring high of 137 points, however the bears took over in later hours on virus concerns.

The major reason for the investor’s negative sentiments was the increasing number of new virus cases. The Delta variant is spreading through the country rapidly due to which several restrictions have been placed that are becoming a hindrance for economic activities. Dull trading activity was also attributed to the upcoming monetary policy meeting scheduled for tomorrow (27th Jul), where the rate setters are expected to leave the interest rate unchanged at 7% amid rising virus cases, a closing note by Aba Ali Habib Securities highlighted.

The Index traded in a range of 322.06 points or 0.67 percent of previous close, showing an intraday high of 47,930.85 and a low of 47,608.79.

Of the 97 traded companies in the KSE100 Index 41 closed up 53 closed down, while 3 remained unchanged. Total volume traded for the index was 91.32 million shares.

Sector wise, the index was let down by Oil & Gas Exploration Companies with 73 points, Cement with 55 points, Commercial Banks with 37 points, Power Generation & Distribution with 19 points and Pharmaceuticals with 16 points.

The most points taken off the index was by PPL which stripped the index of 36 points followed by UBL with 25 points, MEBL with 25 points, OGDC with 25 points and HUBC with 17 points.

Sectors propping up the index were Fertilizer with 58 points, Technology & Communication with 25 points, Textile Composite with 15 points, Chemical with 14 points and Tobacco with 9 points.

The most points added to the index was by ENGRO which contributed 36 points followed by MCB with 24 points, EFERT with 24 points, SYS with 13 points and TRG with 13 points.

All Share Volume increased by 136.08 Million to 450.24 Million Shares. Market Cap decreased by Rs.15.26 Billion.

Total companies traded were 394 compared to 417 from the previous session. Of the scrips traded 187 closed up, 187 closed down while 20 remained unchanged.

Total trades increased by 31,199 to 142,926.

Value Traded increased by 2.47 Billion to Rs.13.56 Billion

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July 26, 2021 (MLN): Gold rates in Pakistan’s bullion market dipped by around Rs650 to settle at Rs109,850 per tola for 24-karat on Monday.

The price of 10-gram of 24k gold also witnessed a fall of Rs536 and traded at Rs94,200 while the 10gm 22k gold pegged at Rs86,330, the data provided by the All Sindh Sarafa Jewellers Association revealed.

On the other hand, the price of 24-Karat silver per tola and 10-gram silver remained stagnant at Rs1,460 and Rs1,251.71, respectively.

Internationally, the gold prices edged higher by $6 to clock in at $1,808 per ounce, on the back of softer dollar while silver was traded at $25.40 an ounce, the association reported.

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July 26, 2021 (MLN): Pakistan’s IT sector has achieved another milestone in the outgoing financial year as it crossed the $2 billion export mark for the first time in Pakistan’s history.

According to the State Bank of Pakistan, during FY21, exports of IT and IT-enabled services grew by 47.4% to $2.12 billion as compared to $1.44 billion in FY20.

While congratulating exporters on achieving this milestone, Adviser to Prime Minister of Pakistan for Commerce and Investment Abdul Razaq Dawood said, “I have always believed in the abilities of our IT professionals & entrepreneurs. They have done a remarkable job.”

 He further encouraged exporters to market their exports even further to achieve more.

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