Equity Analysis /
Global

Banks Q2 results wrap: Africa outperforms Asia

    Rahul Shah
    Rahul Shah

    Head of Financials Equity Research

    Rohit Kumar
    Rohit Kumar

    Global Financials/Thematics

    Tellimer Research
    16 September 2019
    Published by

    Sector Q2 profits rose 7% yoy, versus 10% yoy growth in Q1 19. So far, 93% of our coverage has reported Q2 19 results. The fastest growth was delivered by banks in Tanzania (better volumes and asset quality), Ghana (better volumes, margins, asset quality and trading income) and Egypt (better margins and lower effective tax rates). In contrast, earnings declined in Sri Lanka (low asset yields and higher risk costs) and Kenya (lower net interest margins). 

    Sector Q2 profits were in line with our expectations. Earnings shortfalls were most pronounced in Bangladesh (lower loan growth and higher effective tax rates) and Pakistan (impairment of equity investments). In contrast, we saw positive surprises in Tanzania (better volume growth) and Egypt (better margins and lower effective tax rates). See Figure 2 in the full report.

    UBC SL and FCMB NL registered the biggest earnings surprisesAmong large-cap names, the biggest surprises were at CTG VN (39% ahead of our forecasts, lower credit costs) and KNCB KN (19% beat, strong mobile banking revenue and good operating cost control). The biggest disappointments versus our forecasts in large-cap names were at HBL PA (83% miss, FX and equity investment losses) and SAMBA AB (27% shortfall, unexpectedly high provisions charge). See Figure 4.

    Q2 19 bank sector earnings surprise

    Source: Company financials, Tellimer Research



    MEBL PA and ADIB EY delivered the fastest earnings growth, +88% yoy and +72% yoy respectively. Among large-cap names, the fastest growth was generated by CTG VN (lower credit costs) UBL PA (base effect: there was a high pension provision in Q2 18). In contrast, HBL PA (-81% yoy, FX and equity investment losses) and SAMBA AB (-33% yoy, high provisions charge) experienced sizeable earnings declines.

    County-by-country

    • Bangladesh: Slower loan growth, higher taxes. Systemic risk still high.
    • Egypt: Lower margins and taxes; falling rates boosting investor sentiment. 
    • Ghana: Rising loan growth, better trading income and falling risk costs.
    • Kenya: Rate cap blocking volumes, loan quality; big banks still profitable.
    • Nigeria: Weak loan trends, low asset yields. Asset quality improved. 
    • Pakistan: Strong NII growth. Mild NPL infection, slow loan growth.
    • Saudi Arabia: Margin pressure and limited near-term loan growth.
    • Sri Lanka: Weak credit growth and elevated risk costs.
    • Tanzania: CRDB: strong balance sheet growth, low risk cost. NMB: weak balance sheet growth, margin pressure.
    • Vietnam: Lower credit growth, stable NIM, divergent provisioning burden.

    Our preferences in the sector

    Africa: Egypt (structural macro reforms allied to strong volume growth outlook) and Nigeria (overly discounted valuations, declining NPLs). 

    Asia: Pakistan (rising margins will drive ROE expansion).

    Smaller markets: We prefer Ghana (improving volumes, risk costs).

    Sector large-cap top picks: HBL PA, KNCB KN, MBB VN, ZENITH NL.

    Sector small-cap top picks: BRAC BD, CIEB EY, CRDB TZ, GCB GN