Equity Analysis /

FM & Small EM Banks: Q2 results update – Egypt, Tanzania look strong; Pakistan, Bangladesh appear weak

    Rahul Shah
    Rahul Shah

    Head of Financials Equity Research

    Rohit Kumar
    Rohit Kumar

    Global Financials/Thematics

    Tellimer Research
    8 August 2019
    Published by

    54% of our sector coverage has now reported Q2 19 results. Median earnings growth has been 9% yoy, 2% below our expectations. The biggest positive surprises have been delivered by Tanzania and Egypt banks. In contrast, Bangladesh and Pakistan banks results were below our expectations. On a yoy basis, Tanzania and Egypt showed the strongest growth while Sri Lanka banks have seen profits fall.

    UBC SL delivered the largest positive surprise; HBL fell short. UBC’s net profit grew 115% yoy (227% above our expectation) on the back of a one-off tax adjustment. HBL PA, in contrast, showed an 81% dip in profits and was 83% below our estimates due to high equity investment impairments and a large foreign exchange loss on its unhedged US$ loan.

    Egypt: Strong net interest income and low effective tax rates. For the five banks that have reported, median earnings growth was 25% yoy and 9% above Bloomberg consensus. Margins rose while effective tax rate fell.

    Saudi Arabia: Mixed set of results. Profits were flat yoy and broadly in line with our forecasts. Alinma posted better-than-expected results (stronger asset yields) while Samba disappointed (higher operating costs).

    Vietnam: Broadly in line. Median net profit rose 13% yoy. Loan growth improved as central bank-imposed growth limits were eased. Earnings growth is slowing compared to the past few years, while asset quality is diverging; consumer-focused banks are witnessing higher NPL ratios.

    Pakistan: Impairment of equity investments dented earnings. Results were median 14% below expectations for the three big banks that have announced (HBL, UBL, MCB). Common themes were impairments against equity investments offsetting solid margin expansion (rising rates).

    Bangladesh: Low loan growth and high effective tax rates. Median net profit was flat yoy and 15% below our expectations due to lower loan growth and higher effective tax rates. UCB was the biggest disappointment (high provisions). BRAC results were impacted by high investments at bKash.

    Ghana: Largely positive except SCB. Median earnings growth was 18% yoy (in line with our estimates). Margins and trading income improved for most of our coverage and asset quality is rising. SCB was the key exception, posting disappointing results due to higher impairment charges.

    Tanzania: Strong results on better volume growth and asset quality. Median profit growth was 31% yoy, 11% above our estimates. The positives include lower-than-expected provision charge, and higher deposit and loan growth on the back of easing monetary policy.

    Sri Lanka: Weak results on deteriorating asset quality. Median net profits for DFCC, SEYB and UBC fell 11% yoy (higher impairments) and were 6% below our estimates. DFCC disappointed on high impairments and low asset yields; UBC results were positive (one-off tax adjustment).

    Large cap top picks: HBL PA, KNCB KN, MBB VN, ZENITH NL.

    Small cap top picks: BRAC BD, CIEB EY, CRDB TZ, GCB GN.