21st October, 2009
Banking Sector: FSV enhanced, focus on loan restructuring
The SBP has eased Forced Sale Value (FSV) regulations by increasing benefit of FSV on pledged stocks/mortgaged commercial and residential properties from 30% to 40% and re-allowing benefit on industrial collateral (land & buildings only) at 40% of its FSV. While this is slightly below market expectations (we estimate EPS benefit at PkR0.5-PkR1.4 across coverage banks), the SBP has also provided leeway on restructured loans; among other relaxations, a bad loan in Doubtful category will shift to Substandard category immediately upon restructuring. Some positives of this move are that it 1) attempts to address the issue of bad loan ageing by incentivizing loan restructuring and 2) provides breathing space to the private sector in a still-high interest rate environment. While we maintain our Neutral stance on the banking sector, we see room for upward rerating in NBP, UBL and BAFL as potential 4QCY09 plays. .