With the first half of the calendar year ending on Thursday, a brief analysis of banks’ performance at the stock market depicts a dull picture.
The sector has lost 7.7 per cent in value compared to an increase of 3.7 per cent in the KSE Index.
The banking sector has lost a share of its market capitalization from Jan-June 27, 2011, underperforming the Index by 5 per cent in the 1st Quarter and 6.6 per cent in 2nd Quarter.
In Jan 2011 the market capitalization of the banking sector stood slightly over Rs750 billion and by June 27, 2011 it had decreased to around Rs700 billion.
Although sector’s earnings have been strong (1st Quarter earnings surged by 26 per cent compared to previous year), concerns on the macro front as well as subdued growth in off-take of credit and rising stock of NPLs appeared to be major worries for investors.
A report by JS Research says that overshadowing relatively strong earning growth and attractive valuation multiples were factors like high inflation, low growth, rise in stock of NPLs and lack of direction with regards to IMF programme.
Scrip-wise, ABL, HBL, MCB, NBP and UBL have posted adjusted returns of 1.9 per cent, 10.4 per cent, 0.1 per cent, -8.2 per cent and -1.0 per cent in the first half, from Jan-June 27, 2011.
Analysts believe the core macro issues are likely to cloud the sector’s performance in the short term. However, high loan coverage and attractive secondary market yields will enable profits to remain high in 2011.
Inflation level of 14 per cent, LSM growth of a meager 1.7 per cent in first 10 months of FY11 and depressed private sector off-take remain alarming for the sector.
Rising level of NPLs, with a cumulative accretion of Rs54 billion in fourth quarter of FY10 and Rs26 billion in first quarter of FY11, continue to eat up profitability.
Report said the improved loan coverage and higher yields in secondary market will continue to aid the bottom line growth. With encouraging developments on the macro front which are likely to clear room for upward movement.
As far as individual stock performance is concerned, HBL came out as a major winner with adjusted gains of 10.4 per cent, the only scrip to outperform the broader Index. ABL posted a return of 1.9 per cent, while MCB’s share price gained 0.1 per cent in the period.
UBL lost 1.0 per cent of its value, while NBP fared poorest amongst the top-five banks, loosing 8.2 per cent – with a significant loss of 11.2 per cent in the second quarter of the current fiscal year alone. Among mid-tier banks, BAFL and AKBL ended on the losing side, as they were down 15.1 per cent and 29.7 per cent respectively in the period.
Interestingly, banks such as MCB and UBL have announced cash payouts with the first half-year results. NBP is likely to join the league this year; which could lead to some positive price movement.
