Despite impressive earnings growth, the country’s banks underperformed KSE 100 index by 16 per cent in 2011, viewed the analysts at Topline Research Wednesday. Thus, while Pakistan banking sector is now trading close to book value ( 50 per cent discount to 5 –year average P/BV of 2.0x), the sector is also trading at a deeper discount of 33 per cent when compared to market which is now trading at 1.5x on book value( KSE100 average P/BV of 2.2 in last 5 years). “Our sample includes 5 banks (NBP, UBL, MCB, BAFL and HBL) which represent 67 per cent of market capitalisation and contribute more than 55 per cent of the total industry deposits,” said Farhan Mahmood. The analyst said global financial instability, slowdown in local economy and higher interest rates created doubts in the minds of investors to take exposure in banking sector as these factors may lead to higher non performing loans.
