Top‐5 Banking cluster: Impressive performance, up 25%YoY

The recently concluded results season of the top‐5 banks confirm the initial hypothesis of portfolio shift to PIB on banking profitability. Further support has come from sizable reduction in total provisions (down 73%) and decent uptick of 20%YoY in NFI (Non‐Funded Income). Earnings drive was led by HBL (up 44%YoY) followed by NBP (up 42%YoY), whereas MCB is the only bank to witnessed reduction in earnings (down 1%YoY) during the period under review. Though we continue to stick to our theme of economic revival boding well for banking sector, a material change in policy outlook may force us to revisit our stance. At present, we recommend “buy” on UBL, NBP and HBL.
Growth trajectory formed from NII growth and controlled provisioning
During the 1H2014, Top‐5 cluster of the banking sector witnessed decent performance as their combined profitability stood at PkR51.03bn in 1H2014 vs. PkR40.84bn in corresponding period last year, up 25%YoY. Despite of 15bpsYoY decline in the core banking spreads, the NII of the banks grew by 15%YoY to PkR106.11bn in 1H2014 on the back of high yield offering from longer term PIBs. Further support to the bottom-line came from net provisions that declined significantly by 73%YoY to PkR2.36bn. The said decline can be attributed to absence of hefty provisioning of NBP during the last year. On the NFI front, the top‐5 members experienced healthy 20%YoY growth that further played its role in driving profitability. On sequential basis, the segment cumulatively posted a 24%YoY increase in profitability. NII and NFI grew by 20%YoY and 21%YoY respectively, however a 2‐fold increase in provisions during the 2Q2014 partially diluted the performance.