Equity Analysis /
Pakistan

Pakistan Banks: D-SIB banks to see lower capital requirements

  • SBP has reduced the additional CET-1 requirements for systemically important banks by 50bps

  • This is beneficial for HBL, NBP and MEBL, allowing more breathing room on capital

  • This is likely motivated by recent mark-to-market hits on bonds and IFRS-9

Yusra Beg
Yusra Beg

Senior Investment Analyst

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Intermarket Securities
14 December 2022

SBP has reduced the additional CET-1 requirements for systemically important banks by 50bps. This will be beneficial for HBL, NBP and MEBL, allow for more breathing room on capital, and potentially improve the cash payout. This change may have been motivated by other banking sector developments, with (i) the sharp increase in interest rates this year leading to mark-to-market hits on bonds, and (ii) IFRS-9 around the corner. We have Buy stances on HBL and MEBL while NBP is unrated. 

HBL ends up with breathing room

The additional D-SIB requirement for HBL has been reduced by 50bps to 1.5%. This reduces HBLs overall CAR requirement to 13.0% vs. its last reported CAR of 14.3%. With HBL already in the midst of issuing an ADT-1 instrument of up to PKR10bn, lower D-SIB requirements should give additional comfort on capital buffers. We think HBL will choose to be conservative though, and broadly maintain its cash payout ratio.

MEBL may look to pay out more

MEBL was classified as a D-SIB bank in 2022, and was subject to an additional 1% capital surcharge. This will now be reduced to 0.5% as per the revised SBP instructions. MEBLs deposit growth has decelerated to c 15% vs. previous 5yr CAGR of 20%, while its current accounts have improved from 39% of deposits in 2020 to 47% now. Given MEBL seems to be favoring mix over balance sheet growth, it may use the opportunity provided by lower D-SIB requirements to potentially improve its cash payout from an estimated 25-30% at present.