Equity Analysis /

Banks in 2020: We favour Egypt and Pakistan

  • Across our emerging market coverage of 91 banks in 20 markets, we forecast 12% median loan growth

  • The sector trades at 1.0x 2020f PB, 5.6x PE and offers 5.2% dividend yield

  • We forecast 16.3% ROE in 2020f, up from 16.1% in 2019f

Rahul Shah
Rahul Shah

Head of Corporate & Thematic Research

Rohit Kumar
Rohit Kumar

Global Financials/Thematics

Tellimer Research
8 January 2020
Published byTellimer Research

Nigeria, Vietnam, Ghana, Sri Lanka banks also look attractive

 Across our emerging market coverage of 91 banks in 20 markets, we forecast 12% median loan growth, 11% top-line growth and 14% net profit growth in 2020. The sector trades at 1.0x 2020f PB, 5.6x PE and offers 5.2% dividend yield. We forecast 16.3% ROE in 2020f, up from 16.1% in 2019f.

In the full report we give a country-by-country assessment of the main financial metrics for the banking sector, while on page 11 we map our covered markets and stocks on key industry themes.

Top large-cap picks

  • GUARANTY NL should keep delivering industry-leading ROE with the quality to successfully negotiate the uncertain regulatory environment. 
  • MCBG MP should continue to see good growth from its international trade and structured finance loans. 
  • UBL PA delivers strong earnings growth with an attractive risk-reward profile given its solid capital base and limited international risk.
  • VPB VN should see continued consumer loan growth at FE Credit. Risk costs could fall given legacy NPLs are now fully provisioned.

Top small-cap picks

  • BRAC BD profits from its superior funding, asset quality and margins, while its bKash arm dominates the mobile money landscape. 
  • HNB SL is well-placed to benefit from better loan growth and asset quality, given its superior capital and provisioning base. 
  • CIEB EY should continue to generate superior ROE to peers, supporting its high dividend payout. 
  • GCB GN has scope for funding and operating cost synergies as well as good loan growth prospects.

Favoured markets

  • Egyptian banks are attractively valued with strong growth and profitability prospects. Given COMI EY’s strong outperformance, we would focus on second-tier names.
  • Pakistan banks should deliver the biggest ROE improvement over the coming 12-18 months on higher margins. 
  • Nigerian banks are cheap, but with limited near-term growth.
  • Vietnam banks benefit from a strong macro environment which supports growth and asset quality. 
  • Among smaller markets, banks in Ghana, Rwanda and Sri Lanka appear attractive.

Underweight markets

  • We would limit exposure to GCC banks, where growth and margin dynamics appear unfavourable relative to elsewhere. 
  • The outlook in Argentina is extremely uncertain; any moves to cut interest rates or restructure debts to put the economy on a firmer footing could stress the banks. 
  • After their strong rally in 2019, Russian banks do not scan well in terms of valuation and risk profile.