Sector Q3 profits are expected to rise 8% yoy, up from 7% in Q2 19. The fastest growth is forecast in Pakistan (+38%; improving margins due to rate hikes), Tanzania (+24%; strong credit growth and lower provisions at CRDB) and Bangladesh (+21%; higher margins, lower provisions). In contrast, Sri Lanka (-32%; low asset yields and higher risk costs), Mauritius (-29%; high SBMH base due to one-off items last year) and Nigeria (+4%; falling margins, higher risk costs) are expected to post weak results (see Figure 1).
HBL PA and ALBI AB to deliver the fastest earnings growth among the large caps, +182% yoy and +40% yoy, respectively. At Habib Bank, we expect strong top line growth due to higher margins along with better fee and FX income. For ALBI AB, we expect robust loans and deposits volumes to drive top line growth. In contrast, among the large caps, ZENITHBA NL (-32% yoy, weaker margins and non-core revenues, along with a normalised effective tax rate) is likely to see most pressure on its earnings. (See Figure 2, Table 1).
Our preferences by geography – 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). Among smaller markets we prefer Ghana (improving volumes, risk costs).
Sector large-cap top picks: HBL PA, KNCB KN, MBB VN, ZENITHBA NL
Sector small-cap top picks: BRAC BD, CIEB EY, CRDB TZ, GCB GN
Highlights by market:
Bangladesh: Improving margins, lower provisions charges. Slower credit growth, but a likely pick-up in deposits growth.
Egypt: Recovery in credit growth due to rate cuts, but margins likely to remain under pressure.
Ghana: Improving asset quality (ex-SCB), plus better volumes and operating efficiency. Trading gains could be lower.
Kenya: Lower margins due to rate cuts, improving credit growth.
Nigeria: Falling margins and higher cost of risk. Loan growth could pick up.
Pakistan: Rising margins due to rate hikes. Asset quality might deteriorate slightly.
Saudi Arabia: Better yoy margins, but loan growth remains sluggish.
Sri Lanka: Elevated risk costs, declining margins and weak credit growth.
Tanzania: Non-performing loans to remain high. Flat credit growth. Margins to stabilise.
Vietnam: Strong credit growth for Basel 2 compliant banks with mixed trends in provisions charges.