Banks are likely to post an earnings growth of 72 percent YoY in 4Q2023, primarily driven by higher Net Interest Income (NII).
According to Topline Securities, the NII of the banks in its portfolio is likely to increase by 61 percent YoY to Rs. 324 billion in 4Q2023 on the back of a rise in asset yields. 6M Kibor/T-Bill /PIB rates have increased to 21.88 percent/21.68 percent/17.26 percent respectively (up around 300-550 bps on a YoY basis) in 4Q2023.
In 2023, the Topline Bank Universe is expected to record a profit of Rs. 350 billion up 94 percent YoY, driven by a sharp increase of 600 bps (from 16 percent to 22 percent ) in interest rates. The effective tax rate of the universe is expected to be 50 percent in 2023 compared to 52 percent in 2022.
Despite no hike in interest rates on a QoQ basis, NII is expected to increase by 16 percent QoQ, primarily attributed to the repricing of assets which comes with a time lag.
Non-Interest income of the Topline Universe is likely to post growth of 15 percent YoY and 21 percent QoQ in 4Q2023 likely due to higher inflation, with a major contribution expected from fee & commission income.
Total provisions of the Topline universe are likely to clock in at Rs. 7 billion in 4Q2023 vs Rs. 31.5 billion in 4Q2022 and provision reversal of Rs. 3.1 billion in 3Q2023. To recall last year in 4Q2023, many banks booked higher provisions on account of Pakistan Eurobonds.
Overweight Maintain; Top Picks MEBL, UBL, and MCB
In the Topline universe, MEBL is likely to record the highest per-share earnings of Rs. 16.5/share, followed by MCB of Rs. 16.4/share and HBL of Rs. 11.8/share in 4Q2023.
The report’s top picks in the sector are Meezan Bank (MEBL), United Bank (UBL), and MCB Bank (MCB).