JS Securities Limited - JS Research.

Karachi -- September 22, 2021 (PPI-OT)

Banks: Value before growth!

We update our investment case for Pakistan Banks as we (1) incorporate gradual increase in Policy Rate, starting from 25bps increase announced this week, and taking it to 8.25% in the next one year, (2) incorporate recent tax changes announced in Budget FY22 and (3) roll over our Target Prices to Dec-2022.

We highlight the gradual increase in Policy Rate will initially result in NIMs contraction over immediate increase in cost of funds with upwards adjustment of savings rates on deposits, while re-pricing of loans may take a quarter or two. With the last leg of monetary tightening in Jul-2022, we expect complete impact of 8.25% Policy Rate to be reflected during CY23F.

With ROE inching upwards in the next couple of years, the banking sector warrants a P/B of 1.2x, close to its historical levels. As double-digit earnings growth is reflected in CY23 estimates, the sector offers a value play at current levels with current P/B at 0.7x.

Pakistan's...