BIPL: looking for inorganic growth
Bank Islami Pakistan Ltd (BIPL) has signed a Memorandum of Understanding (MoU) with Emirates Global Islamic Bank Ltd (EGIBL) with a view to merge EGIBL with BIPL. In this regard, BIPL is expected to commence the due diligence process shortly. If the proposed merger goes through, the number of Islamic banks in Pakistan will reduce to five from six at present. Besides lower competition within the local Islamic banking space, in our view advantages for BIPL are 1) enhanced branch network and 2) loan book diversification. That said, relatively poor asset quality of EGIBL could be a concern. Although eventual consideration may be through stock issue (swap), BIPL appears to have necessary funds available on its existing balance sheet should it opt for cash purchase. In CY09, BIPL has underperformed the KSE-100 Index by 72% and the scrip currently trades at a trailing Tier-I P/B multiple of 0.67x.
AKD Research
January 18 2010
Liquidity attaining importance
Banking sector weighted average spread has registered at 7.33% in Nov’09, down by 8bpsMoM and by 30bpsYoY. Inline with expectations, the MoM decline is largely due to lower lending yields and sticky funding costs. That said, with the SBP retaining a cautious monetary stance, lending yields should sustain over the next 3 months at least. In such case, the key determinant of spread in the medium term will likely be funding costs, in turn a function of deposit mobilization. In this regard, banking sector deposits are up 11%YTD to PkR4.2tn on Dec 19’09 while competing National Savings Scheme (NSS) products have attracted PkR98.4bn in 5MFY10, up 148%YoY. NSS is providing viable competition where we believe banks may be pushed to raise deposit rates, leading to gradual spread contraction. From this vantage, we believe investors would likely pay a premium for liquid banks that do not need to raise expensive deposits. Within our coverage universe, these are BAFL, MCB, NBP, AKBL and ABL.
AKD Research
December 31 2009 |
