Banks: Headline spread at a 9-yr low; but margins on the up! Headline banking spreads clocked in at 5.95% for Jul-14; down 40bp MoM as deposit cost rose by 36bp MoM to 5.11%. The apparent increase in deposit cost is mainly a normalization effect, as temporarily higher CA during the last week of Jun-14 (due to Ramadan) had skewed the June number on the downside. We highlight that banks (especially mid and small-tier names) are comfortable raising funds at high rates and parking them in PIBs (at 200-300bp yield differential from T-bills). Actual spreads thus earned are not reflected in the headline data. By Jun-14, conventional banks have parked over 30% of their total deposits into long tenure (3-10yr) PIBs. Thus, liquidity considerations have now taken the front seat in 2H14. SBP has already conducted OMO injections of over PRs700bn since June. Healthy 2Q14 results driven partly by higher margins (as reflected by 19% QoQ NII growth by top 4 private banks) reinforces our positive outlook for Pak Banks. We reiterate Buy on MCB (PO: PRs340) and UBL (PO: PRs225). KASB Securities and Economics Research
Posted on: Tue, 26 Aug 2014 11:53:15 +0000
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