Banking sector profitability improved steeply with a growth of 71.1% YoY in 3Q 2023 while PBT of the big six listed banks grew by 93.4% YoY to Rs. 32.1 bn in 4Q 2023, says the First Capital Research banking update.
“As identified previously, reduction in non-performing loans played as a key catalyst towards the recovery in profitability with stage 3 NPLs of the big six averaging at 5.04% in 4Q2023 and 5.82% in 3Q 2023.
As anticipated the banking sector NPL ratio climbed and peaked at 13.6% in 3Q 2023 and around 13.4% in 2Q 2023.
Private sector credit recovered during 2H 2023 by 4.1%YoY – 4.5% in 1H 2023, with big six listed banks growing 2.7%.
Amid the steep decline in AWDR, the banking sector CASA base improved to 30.6% in 3Q 2023.
The report also said that the Banking sector capitalisation continued to improve and recorded at 3.6% YoY growth in Tier 1 capital and 1.8% YoY growth in Tier 2 capital in 3Q 2023 with several banks raising debentures during 4Q 2023 as interest rates declined steeply.
Despite a slight uptick in prices since the last update, the banking sector continues to trade 0.5x book value, offering opportunities close to doubling the investments, given that the Big Six already offers an average ROE of 11.4% in 4Q 2023.
