JP Morgan Insists Pakistan's Banking Sector is Outperforming Others

Pakistan's banking sector has been the best performing listed sector (via both local and foreign, and portfolio and strategic participation) in the last five years. Since the beginning of the bull-run in Pakistan's stock market in 2002, the banking sector has outperformed the market more than any other listed sector
Reasons to buy are: (1) exposure to a consumption-led, services-driven economy which is amongst the fastest growing in Asia; (2) under-penetrated consumer banking (14% of loans); (3) deepening investment as a % of GDP driving corporate loan growth, (4) credit cycle revival on expectations of easier monetary policy; (5) strong operating outlook backed by balance sheet growth, large spreads and robust asset quality; and (6) regulatory efforts to boost capitalization will likely spur consolidation. The renewed interest by foreigners provides continuing M&A support to valuations.
Outlook for Pakistan's banks is positive over the next two years, in our view, as profit growth is expected to continue, albeit at a slower pace than the last four years' CAGR of 55%. Positive drivers include high spreads (NIM expansion), re-ignition of the credit cycle following likely reduction in interest rates, and the central bank's support to create few, strong players from a group of many, fragmented players.



Editor: Akhtar M. Faruqui
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