Equity Analysis /

FM & Small EM Banks: Positive bias to Q1 numbers – Pakistan, Ghana performed well; Sri Lanka, Kenya less so

    Rahul Shah
    Rahul Shah

    Head of Financials Equity Research

    Nkemdilim Nwadialor
    Rohit Kumar
    Tellimer Research
    6 June 2019
    Published by

    89% of our coverage has now reported Q1 19 results. Median earnings growth is 10% yoy, 6% ahead of our expectations (but below our FY 19 forecast run rate of 15%). Tanzania and Ghana lead the pack, with 90% and 37% yoy growth. Sri Lanka lags, with a 23% yoy decrease in profit.

    Early announcements were more positive than subsequent releases. At the reporting season’s halfway stage, earnings were coming in 9% ahead of our expectations, reflecting a strong showing by Pakistan banks (58% above our estimates). Bank results in Ghana and Nigeria were also robust. In contrast, late reporters Sri Lanka and Kenya have fallen short.

    Country summaries (see also page 5):

    Bangladesh: Net profit rose 17% yoy on better net interest income. DUBA and ISLAMI were below our expectations on higher risk and funding costs.

    Egypt: Median profit growth of 26% can be largely attributed to better operating efficiency and lower-than-expected provision charges.

    GCC: Saudi banks results rose by a median 8% yoy, as expected, due to higher non-interest income and lower operating expenses.

    Ghana: Results outperformed our expectations, driven by net interest income and trading income. Asset quality was, however, mixed.

    Kenya: Q1 results were generally weaker than expected, but banks saw strong loan growth as they shifted their asset mix on falling Treasury yields.

    Mauritius: MCBG’s strong results were driven by loan growth in international markets. SBMH was hit by a high tax charge.

    Nigeria: Outperformers reported lower risk costs and taxes. Operating cost pressure and lower FX/trading income affected the underperformers.

    Pakistan: Results were above expectations but flat yoy due to a one-off super-tax hit. Pre-tax profits rose 35% yoy on strong margin expansion.

    Sri Lanka: Weak results driven by net interest margin (NIM) compression due to slowing credit growth (lower business, consumer confidence).

    Vietnam: Results were slightly below our expectations due to: 1) softening consumer credit demand; 2) weaker NIMs; and 3) capital constraints, especially for government-owned banks.

    Top picks:

    Large cap: KNCB KN (strong retail franchise and growing revenue channels), MBB VN (strong margins and asset quality), HBL PA (stronger risk controls and retail banking business) and ZENITH NL (healthy capital ratios and rising adoption of technology).

    Small cap: BRAC BD (SME focus, advantage in deposit mobilisation and high investment in digitalisation), CIEB EY (above-average margins and strong retail franchise) and GCB GN (high loan growth and expected synergies from recent mergers).