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PAKISTAN BANKING SECTORPAKISTAN BANKING SECTOROutlook & Review

October 2014

Zeeshan AfzalAC

Zeeshan.afzal@topline.com.pk

Topline Securities, Pakistan

Table of ContentOutlookOutlookBanks earnings to grow at 3-year CAGR of 22% --------------------------------------------------------------- 3

Topline Banking Universe: Top Picks (UBL, BAFL, HBL, BAHL) --------------------------------------------------------------- 5

Other attractive mid-cap banking stocks (AKBL, HMB, FABL) --------------------------------------------------------------- 7

Banking stocks: Key Numbers --------------------------------------------------------------- 8

ReviewDeposit growth 14.6% a year in last 5 years --------------------------------------------------------------- 10

Advances growth 5.0% a year in last 5 years --------------------------------------------------------------- 14g y y

Investments growth 32% a year in last 5 years --------------------------------------------------------------- 16

NPLs declining due to better business environment --------------------------------------------------------------- 20

Higher coverage resulting in improved asset quality --------------------------------------------------------------- 22

NIMs to improve on higher asset return --------------------------------------------------------------- 24

Non-interest Income also rising --------------------------------------------------------------- 26

Cost to Income ratio declining --------------------------------------------------------------- 28

Pakistan banks profits rose at 5 year CAGR of 21% 29Pakistan banks profits rose at 5-year CAGR of 21% --------------------------------------------------------------- 29

Listed banks ROE increased to 20.3% --------------------------------------------------------------- 30

Disclaimer --------------------------------------------------------------- 32

October 2014 2

Banks earnings to grow at 3-year CAGR of 22%With l i f i d i i b i ti iti i P ki t l l b k ill b thWith clear signs of economic recovery and reviving business activities in Pakistan, local banks will be thekey beneficiaries in coming years.

As credit appetite has started to grow, local banks are all prepared to finance power, textile, telecom,consumer, construction and transport/communication sectors when credit penetration in Pakistan is atmulti year low of 19% of GDP.multi year low of 19% of GDP.

With rising investors’ confidence in the new business friendly Govt., banks have started to accumulate high-yielding Govt. papers at a time when Govt. is restructuring its debt to long duration under IMF instructions.This will further support Net Interest Margins (NIM).

Reducing Non-Performing Loans (NPLs) coupled with adequate Capital Adequacy Ratio (CAR) will furtherhelp banks overall profit growth.

In addition, evolution of branchless and Islamic banking will improve bank’s outreach and volumes, whichin turn will increase overall banking sector profits.

In a country with population of 188mn, only 35mn bank accounts are there in Pakistan. Thus branchlessbanking provides huge potential to tap new accounts and increase deposit base.

October 2014 3

Banks earnings to grow at 3-year CAGR of 22% (Contd.)I t 3 T li B ki U i d it ti t d t t CAGR t12 9% d tIn next 3 years, Topline Banking Universe deposits are estimated to grow at CAGR at12.9% compared to15.6% in last 3 years. Similarly, we estimate advances growth of 13.5% CAGR in next 3 years vs. 7.9% inlast 3 years.

We expect contribution from NII (Net Interest Income) and Non-Interest Income in the total earninggrowth. In next 3 years (2014-16), NII of Topline banking universe is likely to grow at 14.5% CAGR vs.growth. In next 3 years (2014 16), NII of Topline banking universe is likely to grow at 14.5% CAGR vs.2.8% during 2011-13. Similarly, Non-interest Income growth is estimated to remain at 13.5% CAGR during2014-16 vs. 17.4% in 2011-13.

Due to rising branch network in an attempts to improve service qualities, banks are likely to spend more. Weexpect, Topline Universe Cost to Income ratio to remain at average 49.0% in next 3 years vs. 47.1% during2011-13.

Asset quality would also improve in coming years. we expect Net Infection to drop to 1.6% by 2016 fromcurrent 2.5%.

Due to improved banking fundamentals we expect earnings of Topline Universe banks to grow by 21 9% inDue to improved banking fundamentals, we expect earnings of Topline Universe banks to grow by 21.9% innext 3 years (2014-16) compared to 5.5% growth in last 3 years (2011-13) and 8.1% CAGR in last 5 years.In 2014, we expect earnings of Topline Banking Universe to grow by 35%.

At present, Topline Banking Universe is trading at 2014E PE of 9.8x and 2015F PE of 8.4x. In terms of PBV,2014E ratio is 1.7x while 2015F ratio is 1.6x. Topline Banking Universe is providing average ROE of 18.6%2014E ratio is 1.7x while 2015F ratio is 1.6x. Topline Banking Universe is providing average ROE of 18.6%in next 3 years.

UBL, BAFL, HBL and BAHL are amongst our top picks in banking universe. Few mid cap banks like AKBL,HMB and FABL are also worth looking.

October 2014 4

Topline Banking Universe: Top PicksUnited Bank (UBL)United Bank (UBL)

UBL is Pakistan’s third largest commercial bank having 10% market share in total assets, deposits andadvances of commercial banks in Pakistan.

With extensive branch network of 1,300, UBL is a retail, SME and corporate bank with significant stakesW v b w , , L , ME p b w gabroad. Our investment thesis is based on better macroeconomic fundamentals, improving credit appetite,banks shift to high-yielding Govt. papers and declining bad loans.

High Non-Interest Income and diversification benefit owing to UBL’s presence in Middle East add charm tothe bank.

UBL is trading at 2014E PE of 9.6x and PBV of 1.9x. At current price, UBL offers 29% return to our targetprice including 6.5% dividend yield. Comparing today’s valuation with high growth period (2006-08)average PE of 13.2x and PBV of 3.0x, the scrip trades at 30-35% discount.

Bank Alfalah (BAFL)a a a ( )The bank is operating with branch network of 580 and asset size of Rs673bn (US$6.6bn) and is the 6th

largest bank in Pakistan in terms of assets.

The stock is trading at an attractive 2014E PE of 7.1x and PBV of 1.1x. This is 50-60% discount to PE of14 4x and PBV of 1 9x during 2006-07 Bank also offers decent dividend yield of 7 9% The bank is likely to14.4x and PBV of 1.9x during 2006 07. Bank also offers decent dividend yield of 7.9%. The bank is likely toprovide 27% total return. Recent announcement of IFC for 15% equity injection at Rs28 per share willeventually increase banks capital base and CAR.

BAFL’s Islamic assets stand at Rs98.1bn which is 14.5% of BAFL total assets and 9.0% of Islamic bankingindustry assets. Though the growth is high and cost of deposits is low, industry is facing low yields/margins

October 2014

due to lack of investment avenues. However, we see rising investment avenues and growing market in thefuture which would result in continued growth and better returns.

5

Topline Banking Universe: Top Picks (Contd.)Habib Bank (HBL)Habib Bank (HBL)

HBL is Pakistan’s largest bank (asset size US$17.0bn), having 16.6% market share in total assets and total

deposits of the banking sector. With 1,594 branches, HBL has strong footprints in all banking segments

including retail, corporate and investment banking in addition to SME and Agri financing in Pakistan.

Largest book size, strong penetration in the country, high asset quality and competent management are the

distinguishing features of HBL while expected additional float from Govt. would improve price discovery

and liquidity in the stock.

The scrip is trading at 2014E PE of 9.7x and 2015F PE of 8.6x with PBV of 1.9x for 2014E and 1.7x for

2015F. The stock offers 27% return from current levels inclusive of dividend yield (5%).

Bank Al Habib (BAHL)BAHL is Pakistan’s 7th largest bank with rising branch network The bank is providing one of the best ROEsBAHL is Pakistan’s 7th largest bank with rising branch network. The bank is providing one of the best ROEs(Return on Equity) of more than 21% (listed banks average ROE 16.7%) with excellent asset quality.

Rising branch network and one of the best asset quality in Pakistan banks are other positive characteristicsof the bank.

The scrip is trading at 2014E PE of 8.2x and 2015F PE of 6.7x with PBV of 1.7x for 2014E and 1.5x for2015F. During high growth period of 2004-08, BAHL traded at average PBV of 2.7x. Thus, the stock offers26% upside from current levels inclusive of dividend yield (5.9%).

October 2014 6

Other attractive mid-cap banking stocksW l lik AKBL FABL d HMB t di / ll b k ith b tt f t th d l PBVWe also like AKBL, FABL and HMB amongst medium/small banks with better future growth and low PBV.

Last year’s book cleaning exercise by new management of AKBL is boding well for the bank in shape ofhigher profits and improved asset quality. AKBL is trading at cheap 2014E PBV of 1.1x with impressive ROEof 22.6%.

HMB is another potential stock which can outperform. The bank, which is better in terms of asset qualityand providing ROE of 16.0%, is trading at 2014E PBV of 1.1x

We expect FABL to post 2014 EPS of Rs2.0, up 12%. Earnings are likely to increase to Rs2.7 in 2015 due to24% NII growth. The bank is trading at 2015F PBV of 0.7x.

October 2014 7

Banking stocks: Key NumbersPakistan Listed Banks: Key Numbersy

Share Price Sep 25, 2014

Market Cap.

Market Cap.

3-MonthAvg Volume

(Rs) (Rs mn) (US$ mn) (US$ 000)ABL Allied Bank 108.8 124,595 1,214 161 13.8 7% 7.9 1.6 4.7% 22.1% 2.2%AKBL Askari Bank 21.0 26,453 258 610 3.8 NM 5.5 1.1 9.5% 22.0% 1.2%BAFL Bank Alfalah 28.5 38,478 375 690 4.0 15% 7.1 1.1 8.1% 16.3% 0.9%

PE PBV D/Y (E) ROE ROAEPS Growth Symbol Bank Name EPS

2014E

,BAHL Bank Al Habib 45.0 49,970 487 223 5.5 18% 8.2 1.7 4.8% 22.3% 1.3%BIPL Bank Islami 9.9 5,232 51 8 0.6 77% 15.6 0.8 0.0% 5.2% 0.4%BOK Bank of Khyber 8.5 8,503 83 1 1.4 21% 6.1 0.6 0.0% 10.5% 1.3%BOP Bank of Punjab 7.9 12,208 119 405 1.8 43% 4.4 0.8 0.0% 18.5% 0.8%FABL Faysal Bank 17.8 18,570 181 484 2.0 12% 8.9 0.8 0.0% 9.0% 0.6%HBL Habib Bank 200 1 293 517 2 861 576 20 7 33% 9 7 1 9 5 3% 20 3% 1 8%HBL Habib Bank 200.1 293,517 2,861 576 20.7 33% 9.7 1.9 5.3% 20.3% 1.8%HMB Habib Metropolitan Bank 30.4 31,896 311 80 4.4 32% 6.9 1.1 8.6% 16.0% 1.5%JSBL JS Bank 5.3 5,673 55 73 0.9 99% 6.0 0.5 0.0% 8.0% 0.8%KASBB KASB Bank 1.5 2,946 29 3 0.0 NM 58.9 1.7 0.0% 2.9% 0.1%MCB MCB Bank 280.2 311,860 3,040 681 23.2 18% 12.1 2.6 5.9% 21.7% 3.1%MEBL Meezan Bank 41.3 41,433 404 80 4.7 20% 8.8 1.9 4.3% 23.2% 1.4%

Of % % % %NBP National Bank Of Pakistan 57.8 123,034 1,199 1,225 7.4 197% 7.9 0.8 10.3% 9.6% 1.1%NIB NIB Bank 2.0 20,606 201 25 0.1 NM 18.7 1.2 0.0% 6.8% 0.6%SBL Samba Bank 8.0 8,036 78 28 0.3 227% 29.2 0.8 0.0% 2.7% 0.7%SCBPL Standard Chartered Bank 23.5 91,137 888 5 2.7 0% 8.7 1.6 10.2% 18.3% 2.6%SILK Silk Bank 2.2 5,851 57 14 0.0 NM 47.4 0.9 0.0% 1.8% 0.1%SMBL Summit Bank 3.0 3,266 32 33 (1.2) NM NM 1.8 0.0% NM NMSNBL Soneri Bank 12.5 13,814 135 13 1.3 41% 9.5 0.9 0.0% 10.4% 0.9%UBL United Bank 184.9 226,314 2,206 3,011 19.3 22% 9.6 1.9 6.6% 20.4% 2.2%Total Listed Banks 1,463,392 14,263 9.1 1.5 6.1% 17.1% 1.7%

Prices as on Sep 25, 2014Source: Company Accounts, Topline Research

October 2014 8

Banking stocks: Key Numbers (Contd.)Pakistan Listed Banks: Key Numbers June 2014y

ABL 808,445 645,863 71,561 962 73.9% 4.6% 44.2% 93.2% 0.5% 18.0% 6.4% 40.3%AKBL 407,875 344,823 20,647 281 78.4% 3.7% 50.0% 87.3% 2.2% 11.9% 16.0% 64.3%BAFL 672,532 555,667 31,705 580 64.0% 4.2% 49.7% 68.2% 1.9% 12.1% 6.3% 67.2%

Assets (Rs mn)

Deposits (Rs mn)

Equity (Rs mn) NIMs Cost to

IncomeCASA*Advances

to Deposits

Provision to NPLs

Net NPLs to Net Loans

Capital Adequacy

Ratio

NPLs to Loans

Total Branches Symbol

, , ,BAHL 488,491 416,992 27,837 334 76.9% 4.3% 38.5% 84.7% -1.2% 14.6% 2.6% 54.5%BIPL 97,111 85,466 6,892 201 58.9% 4.4% 40.8% 52.1% 1.2% 15.7% 4.5% 87.1%BOK 108,192 84,349 13,297 101 59.1% 4.3% 31.9% 69.6% 4.6% 24.0% 13.9% 52.5%BOP 376,027 332,815 14,754 334 62.2% 2.4% 48.9% 43.6% 19.5% 9.0% 30.0% 71.1%FABL 345,751 271,944 21,727 269 63.5% 4.9% 64.6% 76.8% 3.6% 11.3% 14.7% 76.1%HBL 1 741 745 1 450 228 148 577 1 594 69 4% 5 1% 39 8% 67 4% 2 5% 15 4% 8 4% 46 4%HBL 1,741,745 1,450,228 148,577 1,594 69.4% 5.1% 39.8% 67.4% 2.5% 15.4% 8.4% 46.4%HMB 377,497 277,142 27,999 174 56.9% 3.1% 42.8% 77.8% 2.1% 16.3% 13.4% 46.4%JSBL 127,135 94,208 13,484 211 65.8% 3.9% 45.2% 57.5% 2.6% 24.3% 6.0% 70.7%KASBB 71,175 64,328 1,684 105 81.5% 4.2% 36.9% 77.5% 10.4% -1.9% 34.1% 94.1%MCB 874,961 685,750 120,214 1,218 89.2% 6.3% 41.5% 83.2% 1.1% 22.2% 7.3% 34.3%MEBL 362,355 317,724 21,475 357 70.0% 5.6% 36.0% 93.8% -0.8% 12.5% 4.1% 58.4%NBP 1 44 966 1 139 3 163 31 1 36 63 % 4 3% 4 % 81 4% 2 8% 16 1% 1 4% 1 8%NBP 1,447,966 1,139,535 163,317 1,367 63.7% 4.3% 54.7% 81.4% 2.8% 16.1% 15.4% 51.8%NIB 182,276 112,103 16,604 171 67.3% 2.7% 84.2% 78.8% 6.3% 12.0% 24.2% 87.3%SBL 49,697 30,117 10,647 28 53.2% 4.1% 65.6% 98.0% 0.2% 42.4% 10.3% 79.0%SCBPL 428,069 312,739 56,444 116 92.6% 6.6% 50.5% 87.7% 1.5% 16.9% 13.4% 46.1%SILK 97,170 78,949 6,366 88 56.5% 4.8% 74.1% 58.7% 5.6% 7.7% 14.0% 94.3%SMBL 136,652 108,452 4,788 187 71.9% 2.7% 52.5% 70.8% 8.3% 4.4% 23.8% 113.3%SNBL 193,852 155,713 13,905 238 70.6% 3.9% 60.6% 70.5% 3.4% 11.0% 12.3% 63.0%UBL 1,103,687 918,210 112,584 1,300 67.6% 5.4% 47.7% 83.9% 1.5% 13.3% 11.0% 45.6%Total 10,498,660 8,483,116 926,510 10,216 70.5% 4.6% 47.1% 75.4% 2.8% 14.9% 12.0% 53.2%Source: Company Accounts, Topline Research **Low Cost Current Accounts & Savings Accounts to Total Deposits

Figures are as on June 30, 2014

October 2014 9

Deposit growth 14.6% a year in last 5 yearsI l t 5 (2009 13) P ki t i l b k d it i d t 14 6% CAGR hil 10In last 5 years (2009-13), Pakistan commercial banks deposits increased at 14.6% CAGR while 10 year(2004-13) deposit CAGR stood at 15.4%. There are total 34 commercial banks in Pakistan (includingpublic, private and foreign banks), out of which 22 are listed.

In addition to monetary expansion, new banks, rising branch network and improving banking penetrationare key factors behind the deposit growth.are key factors behind the deposit growth.

In June 2014, banks deposit growth remained at 13% YoY which is slightly lower than recent growth trend.

The decline in the growth trend is mainly linked to slow growth in money supply and revaluation of foreigncurrency deposits after PKR appreciation.

20%

9,000

10,000

Pakistan Schedule Banks Deposits

Deposits Rs bn (LHS) Growth YoY (RHS)

12%

16%

5,000

6,000

7,000

8,000

0%

4%

8%

1,000

2,000

3,000

4,000

October 2014

0%-

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Jun-

14

Source: SBP

10

Pakistan listed banks: June-14 deposits growth at 13% A t l li t d b k BAFL d HBL t d

Pakistan Listed banks DepositsAmongst large listed banks, BAFL and HBL postedhandsome deposit growth of 15.9% and 15.2%,respectively, in the 12-months ended June 2014while ABL (13.3%), UBL (13.1%) and MCB(12.4%) also posted decent growth trend.

p

Bank Name Deposit (Rs bn) Growth 3-Years

CAGRABL 646 13.3% 17.9%AKBL 345 17.6% 9.4%BAHL 417 14.3% 15.6%

In smaller banks, deposit mobilization activitiesresulted in handsome deposit growth for SMBL(39.1%), JSBL (32.9%), HMB (26.7%), NIB(25.3%), BOK (22.6%), BIPL (22.6%) and MEBL(22.0%) in the 12 months ended June 2014.

BAHL 417 14.3% 15.6%BAFL 556 15.9% 14.1%BIPL 85 22.6% 25.3%BOK 84 22.6% 27.8%BOP 333 12.5% 13.8%FABL 272 12 0% 11 6%

On the other side, deposit growth remained slowfor KASBB (4.7%), SCBPL (7.9%), and SILK (9.8%)while state owned NBP reported deposit decline of0.6% YoY.

FABL 272 12.0% 11.6%HBL 1,450 15.2% 24.8%HMB 277 26.9% 15.5%JSBL 94 32.9% 45.0%KASBB 64 4.7% 11.1%MCB 686 12 4% 13 6%MCB 686 12.4% 13.6%MEBL 318 22.0% 30.3%NBP 1,140 -0.6% 9.8%NIB 112 25.3% 1.9%SBL 30 39.1% 18.3%SILK 79 9.8% 7.6%SNBL 156 16.0% 19.7%SCBPL 313 7.9% 10.4%SMBL 108 12.6% 19.9%UBL 918 13.1% 17.3%

October 2014

UBL 918 13.1% 17.3%Total 8,483 12.7% 16.0%Source: Company Accounts, Topline Research

11

Rising focus on low cost depositsI J 2014 P ki t li t d b k l t CASA (C t A t S i A t ) d itIn June 2014, Pakistan listed banks low cost CASA (Current Accounts Saving Accounts) deposits aspercentage of total deposits stood at 70%, almost 1% higher than June 2013 level. CASA helps banks inenhancing margins.

On individual basis, MCB CASA deposits as percent of total deposits increased by 10.5% to 89% in June2014 while SMBL CASA deposits increased by 9.3% to 72% and BAHL CASA increased by 7.5% to 77%.2014 while SMBL CASA deposits increased by 9.3% to 72% and BAHL CASA increased by 7.5% to 77%.

Fall in CASA witnessed in NIB (by 6.9% to 67%) and BAFL (by 6.5% to 64%).

In terms of CASA, SCBPL is on top with 93% followed by MCB at 89%.

90%

100%Pakistan Listed Banks CASA Deposits

Jun-13 Jun-14 Jun-14 Avg.

50%

60%

70%

80%

0%

10%

20%

30%

40%

October 2014

0%

AB

L

AK

BL

BA

HL

BA

FL

BIP

L

BO

K

BO

P

FAB

L

HB

L

HM

B

JSB

L

KA

SB

B

MC

B

ME

BL

NB

P

NIB

SB

L

SIL

K

SN

BL

SC

BP

L

SM

BL

UB

LSource: Company Accounts, Topline Research

12

Focus on Current Accounts rising within CASATh h CASA d it t 70% f t t l d it i J 2014 f 66% i D 2012 P ki t li t dThough CASA deposits rose to 70% of total deposits in June 2014 from 66% in Dec 2012, Pakistan listedbank CA (Current Accounts) deposits increased to 36% on June 2014 from 31% in Dec 2012. Banks arepreferring CA deposits as these are immune from SBP minimum profit payment requirements and arecheapest source of deposit mobilization.

Amongst listed banks, SMBL CA deposits increased by 12.9% to 39%, MCB CA portion rose by 8.7% to 37%Amongst listed banks, SMBL CA deposits increased by 12.9% to 39%, MCB CA portion rose by 8.7% to 37%while BOP also increased its exposure in CA by 7.9% to 28%. Other than these, CA deposit increase was alsoseen in AKBL (by 5.1% to 29%), BAHL (by 5.5% to 47%), SILK (by 8.5% to 34%) and SBL (by 6.4% to 30%).

On the negative side, NBP CA portion declined by 4.2% to 36% in June 2014.

In CA deposits, ABL is on top with 51% of Current deposits followed by BAHL at 47%.

50%

60%Pakistan Listed Banks CA Deposits

Jun-13 Jun-14 Jun-14 Avg.

30%

40%

50%

0%

10%

20%

October 2014

0%

AB

L

AK

BL

BA

HL

BA

FL

BIP

L

BO

K

BO

P

FAB

L

HB

L

HM

B

JSB

L

KA

SB

B

MC

B

ME

BL

NB

P

NIB

SB

L

SIL

K

SN

BL

SC

BP

L

SM

BL

UB

LSource: Company Accounts, Topline Research

13

Aft 2008 i i i i P ki t dit ff t k i d l d t l i th d

Advances growth 5.0% a year in last 5 yearsAfter 2008 economic crisis in Pakistan, credit off take remained low due to low economic growth andunfavorable business environment.

In last 5 years (2009-13), banking sector advances grew at 5.0% CAGR to reach Rs3.9tn in Dec 2013 while10 year (2004-13) CAGR stood at 13.3%.

Power, textile, telecom, consumer, construction, chemicals and transport/communication sectors are themajor borrowers in Pakistan.

Improvement in economic outlook and pick up of demand for credit by the business sector have resulted in12.5% YoY advances growth in June 2014. The growth rate is highest in last 6 years.

At present, Pakistan Commercial banks ADR (Advances to Deposits) stood at 46.6% as on June 2014.

70%

80%

4,000

4,500

Pakistan Schedule Banks AdvancesAdvances Rs bn (LHS) Advances to Deposits (RHS)

40%

50%

60%

2,000

2,500

3,000

3,500

0%

10%

20%

30%

-

500

1,000

1,500

October 2014

0%

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Jun-

14

Source: SBP

14

Ad f ki li d b k i d b

Pakistan listed banks: June-14 Advances grew by12.3% Pakistan Listed banks Advances

Advances of Pakistan listed banks increased by12.3% YoY to Rs4.0tn in June 2014 after a gap of5 years.

In large banks, MCB, HBL and BAFL remain mostaggressive in lending with advances growth of

Bank Advances (Rs bn)

Growth YoY ADR 3-Years

CAGRABL 286 9.1% 44.2% 1.9%AKBL 172 22.8% 50.0% 2.3%BAHL 160 6 4% 38 5% 10 0%aggressive in lending with advances growth of

27.3%, 19.8% and 17.6%, respectively. However,UBL advances growth remained at 14.4% whileABL advances grew at 9.1%. On the other side,NBP advances portfolio fell by 3.9%.

BAHL 160 6.4% 38.5% 10.0%BAFL 276 17.6% 49.7% 8.0%BIPL 38 23.8% 40.8% 25.1%BOK 27 -0.7% 31.9% 24.8%BOP 163 17.0% 48.9% 9.4%

During the period, food, textile, chemicals, power,commerce and transport/communication werethe major borrowers while consumer lending alsoimproved.

A d th i l t i li ith

FABL 176 0.4% 64.6% 11.3%HBL 577 19.8% 39.8% 9.0%HMB 119 10.8% 42.8% 2.7%JSBL 43 81.1% 45.2% 34.2%KASBB 24 -12.6% 36.9% -5.1%

As advances growth remain almost in line withdeposit growth, ADR of Pakistan listed banksremained stable at 47%.

MCB 284 27.3% 41.5% -0.8%MEBL 116 34.9% 36.0% 28.4%NBP 624 -3.9% 54.7% 9.1%NIB 94 29.9% 84.2% 3.2%SBL 20 28 5% 65 6% 14 6%SBL 20 28.5% 65.6% 14.6%SILK 57 12.6% 74.1% 8.1%SNBL 90 9.0% 60.6% 21.1%SCBPL 158 9.7% 50.5% 1.6%SMBL 57 7.4% 52.5% 11.8%UBL 438 14 4% 4 % 6%

October 2014

UBL 438 14.4% 47.7% 7.6%Total 3,998 12.3% 47.1% 7.7%Source: Company Accounts, Topline Research

15

A d th i d l d G t fi l d i d ft 2008 i i i i k

Investments growth 32% a year in last 5 yearsAs advances growth remained low and Govt. fiscal needs increased after 2008 economic crisis, risk aversebankers started to park funds in risk free Investments with attractive yields.

Further, booming capital markets in last 2 years also encouraged banks to increase stake in stock marketequities.

As a result, Investments of commercial banks increased at 31.8% CAGR (2009-13) to Rs4.3tn.

60%

4,500

5,000

Pakistan Schedule Banks InvestmentsInvestments Rs bn (LHS) Investments to Deposits (RHS)

30%

40%

50%

2,500

3,000

3,500

4,000

0%

10%

20%

500

1,000

1,500

2,000

October 2014

0%-

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Jun-

14

Source: SBP

16

I t t f P ki t li t d b k i d b

Pakistan listed banks: June-14 Investments grew by 5.4% Pakistan Listed banks Investments

Investments of Pakistan listed banks increased by5.4% YoY to Rs4.3tn in June 2014 compared to 3year (2011-13) CAGR of 26.9%.

In large banks, ABL and NBP investmentsincreased by 37 2% and 19 5% respectively On

Bank Investments (Rs bn)

Growth YoY IDR 3-Years

CAGRABL 396 37.2% 61.3% 44.3%AKBL 152 3.9% 43.9% 17.5%BAHL 266 -1.2% 63.9% 20.5%increased by 37.2% and 19.5%, respectively. On

the other side, Investments of HBL fell by 11.6%.While UBL investments remained stable.

On the other side, MEBL investment portfolio fellby 35% YoY on the back of limited investments

BAFL 264 28.5% 47.5% 24.7%BIPL 36 19.6% 44.3% 31.8%BOK 60 49.3% 71.7% 39.0%BOP 142 34.8% 42.7% 30.0%FABL 111 6.4% 40.9% 9.5%

opportunities available in Islamic instruments.

IDR (Investment to Deposits ratio) of Pakistanlisted banks declined by 3.5% YoY to 51% in June2014.

HBL 752 -11.6% 51.8% 49.9%HMB 206 14.4% 74.4% 12.1%JSBL 55 29.3% 58.2% 47.4%KASBB 30 22.3% 46.9% 27.2%MCB 449 8.4% 65.5% 28.7%MEBL 112 -35.0% 72.6% 40.2%NBP 474 19.5% 41.6% 9.6%NIB 47 -16.6% 41.6% 5.5%SBL 19 -17.2% 62.1% 8.1%SILK 15 -12.5% 28.9% 4.6%SNBL 68 19.2% 49.7% 10.1%SCBPL 159 6.5% 51.0% 26.3%SMBL 42 -28.1% 39.1% 24.5%UBL 458 -0.3% 49.9% 26.9%Total 4,313 5.4% 50.8% 26.9%

October 2014

, % % %Source: Company Accounts, Topline Research

17

F th fi t ti i P ki t b k d l l i t h i t d d R 2 2t i G t b d ti

Bank’s rising investments in high-yielding PIBsFor the first time in Pakistan, banks and local investors have invested a record Rs2.2tn in Govt. bond auction(Pakistan Investment Bond/PIB auction) in 9M2014.

As Govt. is re-profiling its debt from short term to long term due to IMF guidelines, local banks are takinglonger term view and have converted their short term investments into high yield Govt. paper.

To recall, yield spread (6-month T-bill versus 3-year PIB), which averaged 57bps during 2009-13, haswidened to average 246bps.

Our estimations suggest that 1.8-2.0% extra yields in PIB over short-term papers can increase banks’ NIMsby 30bps while earnings can improve by approx. Rs16bn (15%).

2500

3000Pakistan Banking Sector Govt. Security Position

PIBs Tbills

1500

2000

2500

0

500

1000

October 2014

0

Sep

-09

Jun-

10

Mar

-11

Dec

-11

Sep

-12

Jun-

13

Mar

-14Rs bn

Source: SBP

18

A f J 2014 P ki t li t d b k ( l di

Listed Bank’s increased PIB exposure by 202%Pakistan Listed banks PIB position

As of June 2014, Pakistan listed banks (excludingAKBL and MCB) PIB investments stood at Rs1.7n,up 202% YoY.

Banks with larger book size remained most activein the buying spree In June 2014 PIB investment

p

Bank Jun 2013 (Rs bn)

Jun 2014 (Rs bn)

Growth YoY

ABL 27 179 562%AKBL - - BAHL 31 110 251%in the buying spree. In June 2014, PIB investment

of ABL stood at Rs179bn (562% up YoY), UBLstood at Rs245bn (96% up), NBP stood at Rs278bn(266% up) and HBL stood at Rs224bn (145% up).

BAHL 31 110 251%BAFL 30 144 376%BIPL - - BOK 9 25 166%BOP 12 54 362%FABL 24 44 85%HBL 91 224 145%HMB 54 121 122%JSBL 10 35 237%KASBB 1 7 459%MCB - - MEBL - - NBP 76 278 266%NIB 22 29 28%SBL 2 17 690%SBL 2 17 690%SILK 1 5 251%SNBL 7 40 504%SCBPL 27 83 208%SMBL 2 34 1351%

*MCB and AKBL do not report PIB positions in interimaccounts while MEBL and BIPL (being Islamic banks) cannot invest in PIBs or T-bills.

October 2014

UBL 125 245 96%Total 553 1,671 202%Source: Company Accounts, Topline Research

19

Aft 2008 i i i NPL f b ki i d t ik d d t l i ti it h lth

NPLs declining due to better business environmentAfter 2008 economic crisis, NPLs of banking industry spiked due to low economic activity, unhealthybusiness environment and dim outlook.

In last 5 years (2009-13), NPL of Pakistan commercial banks increased by 10.8% CAGR to Rs553bn whileGross Infection ratio increased from 9.9% in 2008 to 12.6% in 2013.

As signs of economic recovery are more visible now, business activities have revived and borrowers’ abilityto repay has improved in recent years. In June 2014, NPLs have declined by 3.5% YoY while Gross Infectionhas further eased to 12.3% in June 2014.

The improvement has not only resulted into slower NPLs accretion and lower provisions but also triggeredrecovery of bad loans.

16%

18%

600

700 Pakistan Commercial banks NPLs and Gross Infection

NPLs Rs bn (LHS) Gross Infection ratio (RHS)

8%

10%

12%

14%

300

400

500

600

0%

2%

4%

6%

100

200

300

October 2014

0%-

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Jun-

14

Source: SBPSource: SBP

20

Pakistan Listed Banks NPLs declined by 4.1%Pakistan Listed Banks Gross Infection Ratio

Pakistan listed banks NPLs which stood atRs550bn on June 2013 have dropped to Rs528bnon June 2014 despite loan book growth ofRs439bn.

Bank Jun-13 Jun-14 Chg.

ABL 7% 6% -1%AKBL 21% 16% -5%BAHL 2% 3% 0%Similarly, Gross Infection ratio of listed banks has

declined to 12% in June 2014 from 13.9% in June2013.

Within the listed cluster, BAFL and BOP showedimpressive recovery with drop of 15 0% and

BAHL 2% 3% 0%BAFL 9% 6% -2%BIPL 4% 4% 0%BOK 13% 14% 1%BOP 40% 30% -10%

impressive recovery with drop of 15.0% and13.8% YoY in NPLs. Similarly, NPLs of SMBLdropped by 21.0%, NIB dropped by 11.0% andMCB dropped by 10.8%.

On the negative side, NBP NPLs accretion

FABL 14% 15% 1%HBL 11% 8% -3%HMB 15% 13% -1%JSBL 12% 6% -6%KASBB 34% 34% 0%g ,

remained at 17.5% while FABL NPLs increased by9.1% to Rs29bn.

MCB 10% 7% -3%MEBL 5% 4% -1%NBP 13% 15% 2%NIB 33% 24% -9%SBL 14% 10% 3%SBL 14% 10% -3%SILK 18% 14% -4%SNBL 12% 12% 0%SCBPL 15% 13% -2%SMBL 32% 24% -8%

October 2014

UBL 13% 11% -2%Average 14% 12% -2%Source: Company Accounts, Topline Research

21

Th k t th i i i i d f lli NPL ti d N t NPL ti f P ki t

Higher coverage resulting in improved asset qualityThanks to the aggressive provisioning and falling NPLs, coverage ratio and Net NPL ratio of Pakistancommercial banks has improved.

On June 2014, Coverage ratio of Pakistan commercial banks stood at 81.2% compared to a low of 66.9% in2010. Similarly, Net NPL ratio has also eased to 2.6% on June 2014 vs. 5.3% in 2010.

5%

6%

90%

100%Pakistan Commercial Banks Asset Quality Trend

Coverage ratio (LHS) Net NPL ratio (RHS)

3%

4%

5%

50%

60%

70%

80%

0%

1%

2%

0%

10%

20%

30%

40%

October 2014

0%0%

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Jun-

14

Source: SBP

22

Pakistan Listed Banks Coverage Ratio at 75.4%A i i i i d f lli NPL

Pakistan Listed Banks Net Infection & Coverage RatioAggressive provisioning and falling NPLs areimproving asset quality Pakistan listed banks asNet Infection is falling and Coverage Ratios isimproving.

In June 2014 Net Infection of listed banks stood

Bank Jun-13 Jun-14 Jun-13 Jun-14ABL 0.8% 0.5% 89.5% 93.2%AKBL 6.9% 2.4% 72.4% 87.3%BAHL 0.4% 0.4% 86.2% 84.7%

Coverage RatioNet Infection

In June 2014, Net Infection of listed banks stoodat 3.3%, a drop of 130bps from June 2013 level.Similarly, Coverage ratio has improved to 75.4%in June 2014 from 70.8% in June 2013.

Within the listed cluster, BOP, SMBL, NIB and

BAFL 3.0% 2.1% 66.8% 68.2%BIPL 1.8% 1.4% 46.8% 52.1%BOK 3.7% 4.7% 73.9% 69.6%BOP 28.7% 19.5% 38.8% 43.6%FABL 4.6% 3.8% 69.4% 76.8%

AKBL showed impressive recovery by reducing NetInfection and improving Coverage ratio.

On the negative side, NBP Net Infectiondeteriorated by 20bps YoY to 3.3%.

HBL 3.1% 2.9% 74.8% 67.4%HMB 4.3% 3.3% 73.5% 77.8%JSBL 7.5% 2.7% 40.3% 57.5%KASBB 15.3% 10.4% 65.1% 77.5%MCB 1.6% 1.3% 85.3% 83.2%MEBL 0.4% 0.3% 93.3% 93.8%NBP 3.1% 3.3% 78.6% 81.4%NIB 12.5% 6.3% 71.4% 78.8%SBL 0.4% 0.2% 97.7% 98.0%SILK 10.4% 6.3% 47.9% 58.7%SILK 10.4% 6.3% 47.9% 58.7%SNBL 4.2% 3.4% 66.3% 70.5%SCBPL 1.8% 1.9% 90.0% 87.7%SMBL 16.1% 8.4% 58.5% 70.8%UBL 3.5% 2.0% 77.0% 83.9%Average 4.5% 3.3% 70.8% 75.4%

October 2014

Average 4.5% 3.3% 70.8% 75.4%Source: Company Accounts, Topline Research

23

D it t i f 500b (d i J l 2011 t J 2013) t f f d f th b ki t

NIMs to improve on higher asset returnDespite monetary easing of 500bps (during July 2011 to June 2013), cost of funds of the banking sectorremained insensitive due to SBP’s tightening regulations on payment of minimum return to PLS (Profit &Loss sharing) saving deposits, which is about 37% of industry deposits. Now SBP has effectively linked PLSsaving deposits return to the policy/discount rate. On the other side, return on advances proportionatelymoves with SBP policy rate. This has resulted in tighter banking spreads.

In 8M2014, banking spreads (between deposit cost and lending return) averaged at 6.04% vs. 6.26% in thesame period last year. In August 2014, banking spreads declined to 5.75% in August 2014, lowest after Feb2005.

However, we expect rising NIMs in coming years, on the back of banks rising focus on low cost deposits,higher return on investment (due to rising PIB investments) and lending growth.

14%

16%

Historical Banking SpreadReturn on Advances Cost of Deposits

16%

Banking Spreads vs. Policy Rate

Banking Spreads SBP Policy rate

8%

10%

12%

14%

8%

10%

12%

14%

0%

2%

4%

6%

0%

2%

4%

6%

October 2014

0%

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Source: SBP

0%

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Source: SBP

24

NII f P ki t li t d b k i d b 18 5%

NII growing on rising CA deposits and PIBs Pakistan Listed Banks NII & NIMs

NII of Pakistan listed banks increased by 18.5%YoY to Rs177bn in 1H2014 while NIMs improvedto 4.4% in 1H2014 (4.1% in 1H2013).

On individual basis, NII of ABL grew at 23.8% toRs12 9bn while HBL grew by 20 9% to Rs31 7bn

Rs bnBank 1H2013 1H2014 1H2013 1H2014ABL 10.39 12.87 4.0% 4.2%AKBL 3.85 5.53 2.6% 3.4%BAHL 7 01 8 68 3 5% 4 1%

NII NIMs

Rs12.9bn while HBL grew by 20.9% to Rs31.7bnand NBP grew by 19.2% to Rs22.1bn.

In smaller banks, impressive NII growth waswitnessed in BOP (152.3%), AKBL (43.5%), FABL(49.2%), SILK (76.9%) and JSBL (57.5%).

BAHL 7.01 8.68 3.5% 4.1%BAFL 7.86 9.57 3.7% 3.9%BIPL 1.27 1.50 4.5% 4.3%BOK 1.46 1.66 4.4% 4.1%BOP 1.10 2.78 0.9% 1.9%

Though banking spreads are at historic low,growth in NII comes from higher portion of lowcost deposits, rising credit growth and higherreturn on Govt. bonds as discussed before.

FABL 4.48 6.68 3.4% 4.8%HBL 26.24 31.73 4.1% 4.6%HMB 4.24 5.14 3.2% 3.2%JSBL 1.08 1.71 3.2% 3.8%KASBB 1.30 1.00 4.8% 4.1%KASBB 1.30 1.00 4.8% 4.1%MCB 18.86 21.49 5.9% 6.0%MEBL 5.36 6.10 4.3% 4.9%NBP 20.53 20.03 4.4% 4.0%NIB 1.66 1.78 2.4% 2.6%SBL 0 65 0 81 4 3% 4 2%SBL 0.65 0.81 4.3% 4.2%SILK 0.98 1.74 2.9% 4.9%SNBL 2.43 2.89 3.5% 3.8%SCBPL 9.58 10.00 6.8% 6.4%SMBL 0.23 0.98 0.4% 2.2%

October 2014

UBL 18.50 22.05 4.8% 5.0%Total 149.1 176.7 4.1% 4.4%Source: Company Accounts, Topline Research

25

I dditi t b ki ti N I t t i i l i ifi t t ib t t th b ki

Non-interest Income also risingIn addition to core banking operations, Non-Interest income is also a significant contributor to the bankingsector profits.

Rising banking penetration, branchless banking, banks’ active role in capital markets has resulted in higherNon-Interest Income.

Non-Interest Income to Gross income ratio, which was 30.8% in 2007 and dropped to 23.8% in 2011, hasnow improved to 29.5% on June 2014.

32%

Pakistan Commercial banks Non-Interest Income to Gross Income

26%

28%

30%

20%

22%

24%

October 2014

20%

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Jun-

14Source: SBP

26

Listed banks Non-interest IncomePakistan Listed Banks Non-Interest Income

In 1H2014, Non-Interest Income of Pakistanlisted banks increased by 16.5% to Rs79.2bn.

Improvement in the income is mainly linked torising fee income, forex gains and investment

Rs bnBank 1H2013 1H2014 1H2013 1H2014ABL 5.06 6.38 32.7% 33.1%AKBL 1.78 2.95 31.6% 34.8%BAHL 1.90 2.10 21.3% 19.5%BAFL 3 89 4 37 33 1% 31 4%

Non-Interest Income Non-Int./Total Income

income (Dividend and Capital gain).

In large banks, the income of HBL increased by41% YoY to Rs11.3bn while growth for NBP andUBL remained at 13.3% and 16.4% to Rs15.3bnand Rs11 0bn respectively

BAFL 3.89 4.37 33.1% 31.4%BIPL 0.23 0.33 15.3% 17.9%BOK 0.35 0.54 19.4% 24.7%BOP 2.05 1.26 65.0% 31.2%FABL 2.24 2.20 33.3% 24.8%HBL 8 03 11 32 23 4% 26 3%and Rs11.0bn, respectively.

In smaller banks, AKBL showed impressive growthof 65.5% to Rs2.9bn while MEBL growthremained at 47.8% to Rs2.3bn.

HBL 8.03 11.32 23.4% 26.3%HMB 2.74 2.60 39.3% 33.6%JSBL 1.30 1.19 54.6% 41.0%KASBB 0.59 0.56 31.2% 35.8%MCB 6.00 5.62 24.1% 20.7%MEBL 1.56 2.31 22.6% 27.5%

Though Non-Interest Income increased in rupeeterms, Pakistan listed banks’ Non-Interest Incometo Gross Income ratio remained stable at 30.8%.

NBP 13.55 15.35 39.8% 43.4%NIB 1.37 1.67 45.2% 48.5%SBL 0.09 0.10 12.5% 10.8%SILK 0.62 0.79 38.7% 31.1%SNBL 1.06 1.43 30.4% 33.2%SCBPL 3 42 4 17 26 3% 29 4%SCBPL 3.42 4.17 26.3% 29.4%SMBL 0.70 1.01 75.1% 50.8%UBL 9.43 10.97 33.8% 33.2%Total 68.0 79.2 31.3% 31.0%Source: Company Accounts, Topline Research

October 2014 27

In 2007, Pakistan commercial banks Cost to

Cost to Income ratio decliningPakistan Listed Banks Non-Interest ExpensesIn 2007, Pakistan commercial banks Cost to

Income stood at 42.8% which spiked due to lowbanking income after 2008 crisis .

In addition, inflationary pressures, rising branchnetwork and improving service quality has also

Rs bnBank 1H2013 1H2014 1H2013 1H2014ABL 7.47 8.36 48.3% 43.4%AKBL 4.82 5.57 85.7% 65.8%BAHL 4.81 6.02 54.0% 55.8%

Non-Interest Exp. Cost to Income

pushed the admin cost of the banks.

In listed banks, 1H2014 Non-Interest expensesincreased by 15.8% YoY to Rs137.8bn while Costto Income declined by 100bps to 55.1%.

BAFL 8.09 9.43 68.8% 67.6%BIPL 1.26 1.58 84.1% 86.1%BOK 0.92 1.18 51.0% 53.5%BOP 2.55 2.94 80.8% 72.7%FABL 5.14 6.56 76.6% 73.8%HBL 17 20 21 02 50 2% 48 8%

In large banks, admin cost of HBL increased by22.2% YoY while growth for MCB remained at20.3%. Admin cost of UBL and NBP increased by10.5% and 10.2%, respectively.

HBL 17.20 21.02 50.2% 48.8%HMB 3.16 3.65 45.3% 47.2%JSBL 1.77 2.09 74.3% 72.4%KASBB 1.47 1.48 78.0% 95.3%MCB 8.13 9.78 32.7% 36.1%MEBL 4.01 4.98 58.0% 59.2%

60%

Commercial banks Cost to Income

MEBL 4.01 4.98 58.0% 59.2%NBP 18.29 20.17 53.7% 57.0%NIB 2.60 2.95 85.9% 85.5%SBL 0.74 0.76 100.5% 84.0%SILK 2.14 2.20 133.4% 87.1%SNBL 2.23 2.83 63.8% 65.6%

45%

50%

55% SCBPL 6.20 6.56 47.7% 46.3%SMBL 2.15 2.38 230.4% 119.3%UBL 13.81 15.26 49.5% 46.2%Total 119.0 137.8 54.8% 53.8%Source: Company Accounts, Topline Research

October 2014

40%

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Jun-

14

Source: SBP

28

I l t 5 (2009 13) fit f P ki t

Pakistan banks profits rose at 5-year CAGR of 21%Pakistan Listed Banks Profits

In last 5 years (2009-13), profits of Pakistancommercial banks increased at 21.3% CAGR.

High growth in last 5 years, is not onlyattributable to recent improving fundamentals,but also to low earnings during 2008-10 due to

Rs bnBank 1H2013 1H2014ABL 5,588 7,195 29%AKBL (4,094) 2,181 NMBAHL 2 492 2 968 19%

ProfitGrowth

but also to low earnings during 2008 10 due toeconomic crisis.

In 1H2014, profits of listed banks increased by35% YoY. This growth in mainly because ofhigher NII, low provisions and strong Non-

BAHL 2,492 2,968 19%BAFL 1,943 2,610 34%BIPL 99 160 61%BOK 553 634 15%BOP 988 1,372 39%

Interest Income.

On individual bank basis, profits of HBL increasedby 49.6% YoY to Rs14.5bn in 1H2014 whilegrowth for UBL and NBP remained at 27.6% each.ABL fit i d b 28 8% O th ti

FABL 762 740 -3%HBL 10,377 14,487 40%HMB 1,789 2,110 18%JSBL 145 429 197%KASBB (161) (54) NM

ABL profits increased by 28.8%. On the negativeside, MCB reported declined in profits by 3.4%.

( ) ( )MCB 12,206 11,792 -3%MEBL 1,933 2,254 17%NBP 6,012 7,670 28%NIB 1,048 579 -45%SBL 37 125 235%SBL 37 125 235%SILK (364) 73 NMSNBL 551 664 20%SCBPL 4,741 4,789 1%SMBL (1,143) (944) NM

October 2014 29

UBL 8,862 11,305 28%Total 54,364 73,137 35%Source: Company Accounts, Topline Research

Listed banks ROE increased to 16%ROE of Pakistan listed banks has increased from Pakistan Listed Banks ROE and CARROE of Pakistan listed banks has increased from13.9% in 1H2013 to 16.0% in 1H2014.

5 years ago (in 2008), ROE of Pakistancommercial banks was 7.3%.

Bank 1H2013 1H2014 2012 2013ABL 20.0% 20.6% 16.3% 18.0%AKBL NM 21.4% 9.4% 11.9%BAHL 23.3% 22.1% 16.0% 14.6%BAFL 14 5% 16 8% 12 6% 12 1%

ROE CAR

Similarly, CAR (Capital Adequacy Ratio) has alsoimproved from 12.6% in 2008 to 14.9% in 2013.

Improvement is mainly because of risingprofitability, prudent lending practices, higherinvestments income and slow NPL accretion

BAFL 14.5% 16.8% 12.6% 12.1%BIPL 3.5% 4.8% 15.5% 15.7%BOK 9.1% 9.7% 25.1% 24.0%BOP 15.5% 19.0% 7.7% 9.0%FABL 7.1% 6.8% 10.7% 11.3%HBL 16.9% 19.8% 15.3% 15.4%investments income and slow NPL accretion.

On individual bank basis, ROE of HBL increasedby 3% YoY to Rs19.8% in 1H2014 while UBL ROEimproved by 2.2% to 20.3%. In small banks, BOP,HMB, JSBL and SBL showed impressive ROE

HMB 13.2% 15.3% 16.9% 16.3%JSBL 3.2% 6.4% 19.0% 24.3%KASBB NM NM 1.1% -1.9%MCB 22.9% 19.7% 22.3% 22.2%MEBL 22.1% 21.6% 14.1% 12.5%

% % % %, J p

growth. NBP 8.7% 9.4% 16.1% 16.1%NIB 14.7% 7.0% 12.1% 12.0%SBL 0.7% 2.4% 43.9% 42.4%SILK NM 2.2% 5.7% 7.7%SNBL 8.6% 9.6% 12.4% 11.0%SCBPL 25 4% 17 3% 14 4% 16 9%SCBPL 25.4% 17.3% 14.4% 16.9%SMBL NM NM 4.6% 4.4%UBL 18.1% 20.3% 14.8% 13.3%Total 13.9% 16.0% 14.8% 14.9%Source: Company Accounts, Topline Research

October 2014 30

CONTACT US

Mohammed Sohail CEODir : +9221-35303333-4 Cell: +92300-8232726 sohail@topline.com.pk

Zeeshan Afzal Analyst Banking Sector Dir : +9221-35303346Cell: +92322-6755552

zeeshan.afzal@topline.com.pk

Corporate Office:

306, Continental Trade Center,

Block 8, Main Clifton, Karachi,

Pakistan.

Phone +9221-35303330-2

Fax +9221-35303349

31

Disclaimer

Analyst CertificationThe research analyst(s) denoted by “AC” on the cover of this report, primarily involved in the preparation of thisreport, certifies that (1) the views expressed in this report accurately reflect his/her personal views about all of thesubject companies/securities and (2) no part of his/her compensation was, is or will be directly or indirectly related tothe specific recommendations or views expressed in this report.

DisclaimerThis report has been prepared by Topline Securities (Private) Limited (“Topline”) and is provided for informationpurposes only. Under no circumstances this is to be used or considered as an offer to sell or solicitation of any offer tobuy. While reasonable care has been taken to ensure that the information contained therein is not untrue or misleadingat the time of publication, we make no representation as to its accuracy or completeness and it should not be relied uponas such. From time to time, Topline and/or any of its officers or directors may, as permitted by applicable laws, have aposition, or otherwise be interested in any transaction, in any securities directly or indirectly subject of this report. Thisreport is provided only for the information of professional advisers who are expected to make their own investmentdecisions without undue reliance on this report. Investments in capital markets are subject to market risk and Toplineaccepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report orits contents. In particular, the report takes no account of the investment objectives, financial situation and particularneeds of investors, who should seek further professional advice or rely upon their own judgment and acumen beforemaking any investment. The views expressed in this report are those of Topline Research Department and do notnecessarily reflect those of Topline or its directors. Topline as a firm may have business relationships, includinginvestment‐banking relationships, with the companies referred to in this report. This report may not bereproduced, distributed or published by any person for any purpose whatsoever. Action will be taken for unauthorizedreproduction, distribution or publication.p , p

32