JS Securities Limited - JS Research.

Karachi -- July 08, 2020 (PPI-OT)

Banks: 2QCY20E growth doesn't reflect the complete picture of monetary easing

We preview banking sector earnings for 2QCY20, where we expect the sector's bottom-line to witness an increase of 43% YoY on account of decline in costs from the 400bps Policy Rate cut in 2QCY20, with no cash payout announcements from banking companies.

We expect the sector's NIMs to sequentially jump by 120bps, however we highlight the increase would be a blip as lower interest rates would likely decline NIMs from the 3Q onwards over lag impact of interest rate movement on the sector's revenues.

We expect the sector to prudently record loan provisions for borrowers who are expected to face liquidity issues given prolonged slowdown in economic activity. We also expect the standstill in economic activity and trade during some time of 2QCY20 to materially impact the sector's Fee Income this quarter.

On the other hand, we expect absence of impairment under investments (JS Banking Universe 1QCY20: Rs3.9bn, KSE100: -28%) as the KSE100 Index has gained by 18% during the 2QCY20.

Delay in impact on revenues to expand NIMs

We preview banking sector earnings for 2QCY20, where we expect the sector's bottom-line to witness an increase of 43% YoY on account of decline in costs from the 400bps Policy Rate cut in 2QCY20. Alongside results, we do not expect banking companies to announce cash pay-outs, in-line with SBP instructions with the objective to preserve capital. We expect banks to announce any dividend pertaining with 2Q and 3Q to be cumulatively announced with year-end results. We expect the sector's NIMs to sequentially jump by 120bps, however we highlight the increase would be a blip as lower interest rates would likely decline NIMs from the 3Q onwards owing to...