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Banking Sector – Quantifying Fear & other Ground Realities

The AKD Banking Universe has shed 16% over the last month, largely driven by fears surrounding the upcoming Budget. While we remain cognizant of these concerns, we believe the same have been overplayed. Our sensitivity analysis indicates that even if tax rate is raised to 40% AND fee income forecasts are reduced by 10% across CY10F-CY14F, impact on EPS estimates for the AKD Banking Universe is confined to circa 10% on average. At the same time, recent insightful sector data seems to have slipped under the radar – 10MCY10 deposit growth has registered at a strong 17%YoY and auto finance is sequentially up in Apr’10 after a gap of two years. Taken together with more sedate NPL slippage levels and firm spreads (up 9bpsMoM in Apr’10), we believe sector fundamentals are on the up. As a result, we retain our view that recent correction in share prices should be taken as an opportunity to accumulate banking sector scrips. We prefer MCB, UBL and NBP.            

AKD Research
28 May 2010

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