Banks: In PIBs we trust. The govt. raised an unprecedented PRs530bn in yesterdays PIB auction, against a target of merely PRs60bn. This takes the total amount raised through 1Q2014 PIB issues to PRs974bn. Cut-off yields remained largely similar to last auction levels, with 3, 5 and 10-yr cut-offs at 12.10%, 12.55% and 12.90% respectively. 55% of the total amount (PRs289bn) was raised in 3-yr tenor. This has profound earnings implications for the banking sector, as banks have effectively shifted a massive proportion of their T-bill positions (yielding ~10%) to PIBs (yielding >12%). This should result in significant NIM improvement. Our analysis suggests that the incremental 200bp earned on estimated shift of ~PRs650bn from T-bills to PIBs would have an annualized earnings impact on our sample banks of 8% on average, based on 2013 PAT levels. We flag FABL and HMB as the biggest beneficiaries, potentially set to realize 13.8% and 11.4% higher bottom-lines compared to 2013 levels from this change.
Posted on: Thu, 27 Mar 2014 15:36:24 +0000