· Total deposits of scheduled banks dropped by 1.2%MoM to PkR22.5tr at the end of Dec’22. This marks the first time in about 20 years that deposits have concluded the calendar year with a MoM drop.
· The drop in deposits witnessed this time arn be attributed to banks aiming to end the year with a higher Advances to Deposits ratio (ADR), in a bid to shield themselves from heightened taxation introduced in the FY23 budget.
· Industry ADRs jumped from 48.8% in Nov’22 and 48.6% at the end of 3QCY22 to a whopping 53.0% in Dec’22.
· Investments held by banks dropped by ~3.1%MoM to PkR17.9tr as of Dec22. Over the past quarter, scheduled banks’ investments have increased by 2.4%QoQ or PkR417.8bn.
· With interest rates in the country likely to increase in 1HCY23 (200bps, taking the policy rate to 18% by Jun 23), we expect NIMs to expand during CY23. As a result, the average NIMs of our Banking Universe are expected to increase from 4.9% in CY22 to 5.4% in CY23.
· Our top picks are MEBL (TP: PkR152/sh) and MCB (TP: PkR160/sh) due to the former’s healthy deposit growth and the latter’s dividend yield of ~24%.
Courtesy – AKD Research