The banking sector has wrapped up the year on a positive note.

As CY23 concludes, the banking sector has wrapped up the year on a positive note, benefitting from following key factors: Firstly, the impact of asset repricing has led to improved NIMs for banks. Secondly, a strategic focus on building-up low-cost deposit portfolios served as a prudent precautionary measure, mitigating the impact of a 600bps hike during the year. Lastly, increased non-interest income, fueled by growth in fee earnings and PKR volatility, has further bolstered the sector’s performance.

Our projections indicate a substantial YoY profitability growth of +74% for the banks within our coverage in CY23, with an anticipated 4Q surge of 46% YoY.

The AHL’s banking universe outperformed the KSE100 by 4% in total returns, posting a return of 39% during the outgoing quarter (4Q). The AHL banking universe’s performance stands out even more, exceeding the sector by an impressive 34% and yielding a remarkable return of 88%.

Additionally, we project that banks will maintain capital reserves well above the minimum requirement levels, with the likelihood of some, like AKBL, resuming dividend payouts. Meanwhile, others such as FABL might consider increasing their quarterly dividend payout, driven by their optimistic earnings outlook and bolstered capital adequacy buffer.

Moreover, the banking sector concluded CY23 with a record-high deposit figure of PKR 27.8trn, reflecting a significant 24% YoY growth. Furthermore, by the end of Dec’23, the banking industry witnessed a 4% QoQ increase in advances. In contrast, deposits showed a more substantial growth of 6% QoQ, resulting in the overall ADR for the banking sector reaching 44.4%. In addition, the IDR surged to 90.8% as of Dec’23, indicating a substantial portion of banking deposits allocated towards government securities.

Courtesy – AHL Research

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