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Pakistan Banking Sector

November 17, 2009  

Value multiples set for rerating

We remain selectively positive on the Pakistan Banking Sector and believe that a fresh banking rally will develop over the next 3-6 months. 3QCY09 results have surprised on the upside despite most banks not availing the benefit of lower provisioning requirements. In our view, sizeable provisioning reversals will likely be booked in 4QCY09, potentially leading to bumper earnings. Setting accounting changes aside, improving fundamentals such as 1) slower NPL accretion, 2) NIM maintenance, 3) better liquidity, and 4) greater balance sheet strength reaffirm our expectations for growth in CY10F. Prevailing value multiples suggest there is room for sustained positive price discovery going forward. Our top pick is NBP (volumetric growth). In case of a broad-based rally, outperformers would likely include MCB (high beta) and BAFL (mean retracement).

AKD Research

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