Morning Call about Banks – Arif Habib Limited

Karachi, December 19, 2013 (PPI-OT): Improved Textile sector dynamics to benefit Banking sector

According to Arif Habib Limited,

Improved Textile sector dynamics to uplift Banking sector asset quality Considering on average 16% exposure of the banking sector gross advances to country’s textile sector, the news of granting GSP+ Status can potentially serve as a positive trigger for banks; firstly, in terms of banks’ improved asset quality and, secondly, due to possible reversals and lower provisioning charge-off ahead.

Mid-tiers banks with largest exposure to benefit the most
Arif Habib Limited believes mid-tier banks could stand out as a major beneficiary considering their large exposure in the said sector (~26% of the gross advances) and decent infection ratio of ~29%.

Individual Banks exposure to Textile sector

PKRbn (Dec-12)           Gross                     %shares of
                        Advances       Textile       Gross      Infected    Coverage

Top-tier Banks          2,218.30        273.7         12%          28%         87%
NBP                       734.3          72.0         10%          40%         90%
HBL                       501.8          62.5         12%          27%         81%
UBL                       430.7          59.9         14%          27%         83%
ABL                       288.9          41.4         14%          23%         85%
MCB                       262.6          37.8         14%          14%        100%
Mid-tier Banks           802.30         209.2         26%          29%         55%
BAFL                      211.4          32.9         16%          15%         64%
FABL                      190.9          27.7         15%          22%         72%
BOP                       175.9          48.0         27%          58%         36%
AKBL                      162.9          22.1         14%          51%         68%
BAHL                      153.5          54.8         36%         4.0%         83%
HMB                       119.3          56.6         47%          23%         70%
Small-tier Banks          166.00         32.5         20%          39%         63%
SNBL                       83.3          16.7         20%          33%         70%
SMBL                       64.9          11.7         18%          56%         53%
SBL                        17.8           4.1         23%          17%         99%
Islamic Banks            122.30          27.5         22%          10%         88%
MEBL                       94.4          24.8         26%          10%         91%
BIPL                       27.9           2.7         10%          10%         57%

Source: Company Financials, AHL Research
Textile sector’s growth to reduce banks’ concentration risk
Historically, the textile sector has had the highest infection ratio of 31% on average – other sectors that share high infection ratios are electronics, energy, consumer, and agribusiness. Henceforth, a renewed performance in the sector would eventually result in banks accumulating lower non-performing loans (NPLs). By Sep’13, PKR 208.6bn NPLs (Sep’12: PKR 207.4bn) are associated with the textile sector, consuming loans to the tune of PKR 669.6bn (Sep’12: PKR 605.5bn). While an estimated 26% of these loans were to facilitate exports re-financing followed by 36% for working capital, that is almost 62% of the total loan disbursed (see exhibit on the left). Nevertheless, renewed optimism in the sector could potentially result in increased sector recoveries of these loans.
Sector-wise Advances and Non Performing Loans (NPLs)

                              Sep-12                         Sep-13
                             Infection                      Infection
PKRbn     Advances   NPLs      Ratio    Advances    NPLs      Ratio
Textile     605.5    207.4     34%       669.6      208.6      31%
Total     3,981.3    617.1     16%     4,210.3      603.8      14%

Source: SBP, AHL Research

Banks with higher infection ratio to benefit the most out of possible reversals
To sum-up, investors who are seeking yet another conceivable entry points into banks’, this might be it. Based on latest full-year financials, HMB has the highest loan portfolio exposure to the textile sector at 47%. However, BAHL has the lowest infection ratio for the said sector at 4%. Whereas in terms of recoveries banks with the highest infection ratio, BOP, NBP, SMBL and AKBL, will likely stand out as a possible beneficiary.

The post Morning Call about Banks – Arif Habib Limited appeared first on AsiaNet-Pakistan.

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