Updated on August 09, 1999
Market Update
True to our expectations the KSE 100 witnessed a slight drop over the
week. Closing at 1207.89, the KSE 100 went down by 43.9 points translating into a drop of
3.51 percent over the week. This change in fortunes was triggered by profit taking setting
in. Our strategy of exiting at attractive levels and buying at dips again proved itself
with the KSE 100 sentiments actually echoing this market strategy.
Hubco continued to dominate investor interest accounting for the better
part of total market turnover. This increased interest which has spilled over from last
week was rejuvenated with the arrival of the Chairman of Hub Power Company and the ensuing
dialogue between Hubco and WAPDA.
With volumes still at relatively comfortable levels, the KSE 100 is
likely to continue to face limited turbulence once profit taking starts to settle in. Due
to this phenomena the KSE 100 is likely to continue to flounder at current levels with
weakness causing it to slip further a peg or two.
For the coming week the KSE 100 is likely to see initial support at
1200 levels while initial resistance likely to appear around the 1220 levels with major
resistance will be at the 1280 levels.
Sector Review
Banking Results: Faysal Commercial Bank Interim Results
We have focused repeatedly on banking in the light of changes
introduced after the nuclear tests last May. The 2nd half of 1998 was a period of utter
chaos, and hence was not suitable for judging any changes to the operating patterns of
banks in Pakistan. This does not apply to the 1st half of 1999, and it will be useful to
take a close look at interim results announced by banks to get a better idea of where the
banking sector is headed. Faysal Bank, being one of the larger banks in the private sector
provides a good idea of what to expect for banks that are not in prime health. A quick
summary of interim results follows:
As is to be expected in an environment of falling interest rates and
increasing competition for Rupee deposits, revenue for the bank have taken a hit. As a
result, yields have declined as liquidity has increased with interest income remaining
flat as a result. Stiff competition for Rupee funds forced cost of funds higher, putting
pressure on gross spreads. Despite a difficult operating environment, the bank managed to
maintain fund based income. In line with tough operating conditions, a tight check on
operating costs shows up in a considerable drop in administrative expenses. We expect
these trends to be present in results for other banks as welt Initially, spreads will be
squeezed as yields fall faster than cost of funds, leading to a margin squeeze. Later,
spreads are likely to recover as funding costs also decline, although overall margins are
not expected to recover completely. Hence, banks with the capacity to grow the asset side
of the balance sheet in the future will be best positioned to enhance profitability. Banks
with existing problems in their loan books have little or no chance of earning meaningful
returns for investors. Sadly, Faysal still falls in the category of banks with loan book
problems, essentially compromising the advantage of a large equity base. We remain SELLers
of Faysal for now.
%
| Rs mn |
1HY 99 |
1HY 98 |
2HY 98 |
y-o-y |
h-o-h |
| Mark Up Income |
1,122 |
1,163 |
1,041 |
-3.5 7.8 |
| Less: Cost of Funds |
1,062 |
1,014 |
1,067 4.8 -0.4 |
| Net Interest Income |
60 |
149 |
-26 -59.9 327.7 |
| Fees, Comm., & Brokerage |
50 |
71 |
69 -29.2 |
-27.7 |
| Profit from Investments |
130 |
166 |
171 |
-21.6 |
-23.8 |
| Other Operating Income |
137 |
82 |
159 |
66.4 |
-13.6 |
| Total Fee Based Income |
317 |
319 |
399 |
-0.6 |
-20.4 |
| Total Income |
377 |
468 |
372 -19.4 |
1.3 |
Operating Expenses:
| Loan Loss & Other Provisions |
58 |
0 |
1,056 |
n/a |
-94.5 |
| Administrative Expenses |
-170 |
208 |
221 -18.0 |
-22.9 |
| Other Income |
4 |
2 |
5 |
134.6 |
-21.2 |
| Profit Before Tax |
153 |
262 |
-899 |
-41.5 |
-117.0 |
| Taxation |
73 |
152 |
523 |
-52.1 |
-113.9 |
| Profit After Tax |
81 |
111 |
-377 |
-27.1 |
-121.4 |
