Monetory Policy Analysis

8/13/2019 Monetory Policy Analysis

1/6

Wednesday, September 25, 2013

|

Fresh banking spreads fall to 4.46 percent in August

Staff Report

KARACHI: Weighted average spreads marginally slid by 3.0 basispoints (bps) to 6.28 percent in August 2013, while similar trend

was observed in the fresh spreads as they decreased to 4.46

percent, according to latest State Bank of Pakistan (SBP) data.

With the latest monetary policy statement (MPS) increasing

interest rate by 50 bps along with high inflation figures expected in

fiscal year 2013-14 (FY14), Foundation Securities analystbelieves further rate hike could be on the cards improving the core

margins of the banking sector. While loan portfolio growth islikely to remain timid, apart from certain firm industry dynamics,the banks are expected to keep placing funds in risk-free assets

following their risk aversion policy.

Weighted average lending rates have further declined by 17 bps on

monthly basis and 171 bps on yearly basis to 11.11 percent in

August 2013 while overall deposits decreased by 14 bps on

monthly basis to 4.83 percent. This has resultantly pulled downweighted average spreads by 3.0 bps on monthly and 67 bps on

yearly basis to 6.28 percent.

Fresh spreads too have followed a similar trend of weightedaverage spreads as they reduced by 29 bps on monthly basis to

4.46 percent in August 2013 from 4.75 percent in July 2013. Fresh

lending rates reduced by 51 bps on monthly basis to 9.69 percentwhereas lower than proportionate decrease in fresh deposit rates of

23 bps was witnessed on monthly basis to 5.22 percent.

As of September 6, 2013, banking deposits have remained muted

until now with qualifying time deposits declining by 2.0 percent.

Moreover, with 50 bps decrease in the interest rate announced in

June 2013, the analyst expected interest income to come underduress for the banking sector. Due to uncertainty of interest rate

hike, the banking sector has refrained from investing in new

investments especially in government papers as shown in theprevious T-bills auctions resulting in total investment to drop by

13 percent and hence investments to deposit ratio to reduce to 50

percent. However, as conditions become clearer, the analyst

expects placement of funds to increase as seen in the last T-bills


2/6

auction.

In the latest monetary policy statement, the SBP increased the keypolicy rate by 50 bps to 9.5 percent and also pointing out

inflationary figure of 11 to 12 percent in FY14. Due to higher

inflationary expectation, banking sector sentiments are signallingto another rate hike in the near-term, especially in the nextmonetary policy to be announced in November 2013. This was

reflected in the latest T-bills auction where majority of the bids (99

percent) were in the three months tenor while zero bids in the 12months tenor.

Core margins will slightly recover in coming months on the back

of increase in the key policy rate. However, higher inflationaryexpectation could trigger another rate hike. The analyst believed,

while loan portfolio growth is likely to remain timid, apart from

certain industries, the banks are expected to keep placing funds inrisk-free assets.

http://www.dailytimes.com.pk/default.asp?page=2013\09\25\story_25-9-2013_pg5_4

Sunday, November 3, 2013

Karachi Stock Exchange Weekly Analysis 3 Nov, 2013

The Karachi Stock Exchange (KSE) market was bullish, on account of above expected corporate

results. KSE100 index closed at 2 2,649.09 points by gaining 203.5 points or 0.91 percent.

While KSE30 index closed at 17,238.26 points by gaining 179.96 or 1.05 percent. Average

daily turnover fell by 14 percent on week-on-week basis to 115 million shares against 133

million shares, whereas the dollar value fell by nine percent on week-on-week basis.

The KSE-100 Index closed the week at 22,649 points, up by 0.91%WoW with average daily

traded volumes clocking in at 115mn shares, down 13.64%WoW. The index heavyweight MCB

Bank Limited and the Oil and Gas Development Company Limited remained the major

supporters to the rally.
http://www.dailytimes.com.pk/default.asp?page=2013/09/25/story_25-9-2013_pg5_4http://www.dailytimes.com.pk/default.asp?page=2013/09/25/story_25-9-2013_pg5_4http://www.karachistockexchange.org/2013/11/karachi-stock-exchange-weekly-analysis.htmlhttp://www.karachistockexchange.org/2013/11/karachi-stock-exchange-weekly-analysis.htmlhttp://www.karachistockexchange.org/2013/11/karachi-stock-exchange-weekly-analysis.htmlhttp://www.dailytimes.com.pk/default.asp?page=2013/09/25/story_25-9-2013_pg5_4


3/6

Following news have played vital role in Karachi Stock Market index movement:

Chief of TTP killed in a drone attack & likely revenge activity by TTP Expectations of Interest rate hike in upcoming November Monetary Policy Any statements from the IMF team on quarterly review on Pakistan will also be eyed With the MPS expected towards the end of next week, an expected hike in the DR could

possibly put the Banking Sector in the limelight while companies with significantleverage could lose out

The KSE100 rose by 4.3% in the month of Oct13, with the main driver of the marketbeing the resumption in foreign portfolio investment, with US$51mn of net portfolioinvestment during the month

PSO (+83%YoY), ENGRO (+1236%YoY) and NML (+48%YoY) were among the keyblue chip companies that registered strong earnings growth

Interestingly foreign investors bought nearly USD50mn worth of stocks out of whichnearly USD41.5mn worth of buying was made in the last ten days of the month while

individuals and companies were on the selling side BIPL has planned to issue rights shares up to PKR750mn, as the exemption granted by

the SBP for MCR expired on March 31 Rising inflation coupled with rupee depreciation minimized the continuous swift import of

Chinese brand mobiles and accessories in the first quarter of the 1QFY14 as the overalltelecom sector imports declined by 14.46 %

NFDC released its monthly report on 28th Oct, indicating urea sales have jumped 91%YoY to 504k tons while DAP sales were down 19% YoY during the month of Sep13

Foreigners aided the indexs growth and the market saw foreign buying worth $18million during the week

The country's liquid foreign reserves rose by US$267mn mainly due to arrival ofCollation Support Fund (CSF) inflows of US$322mn

Drug Regulatory Authority (DRA) will announce an increase in prices of genericpharmaceuticals next week

Expected submission of Pakistans request for the EU GSP Plus Status to the EUParliament later this month

The fertiliser sector was back in the limelight as resumption of regular gas supply tofertiliser plants meant a return to normal production levels, resulting in huge gains forEngro Fertilizers and Fatima Fertilizers. Fauji Fertilizer Company, which was lessaffected by the gas outages, also managed to post earnings above expectations,triggering buying in its stock

Pakistan State Oil, Bank Alfalah Limited, National Bank of Pakistan, Nishat ChunianLimited, Nishat Chunian Power Limited, Fatima Fertilizer, Maple Leaf Cement, EngroCorporation, Pakistan Petroleum Limited and Fauji Fertilizer Company were among theblue-chips, which announced their above expectation results

Top ten gainers of last week were: Colgate Palmolive, Century Paper, Nestle Pakistan, SiemensPak Engg., National Foods, Arif Habib Corp, Attock Cement Ltd, Allied Bank, J.D.W.Sugar and


4/6

Following news have played vital role in Karachi Stock Market index movement:

Chief of TTP killed in a drone attack & likely revenge activity by TTP Expectations of Interest rate hike in upcoming November Monetary Policy

Any statements from the IMF team on quarterly review on Pakistan will also be eyed With the MPS expected towards the end of next week, an expected hike in the DR could

possibly put the Banking Sector in the limelight while companies with significantleverage could lose out

The KSE100 rose by 4.3% in the month of Oct13, with the main driver of the marketbeing the resumption in foreign portfolio investment, with US$51mn of net portfolioinvestment during the month

PSO (+83%YoY), ENGRO (+1236%YoY) and NML (+48%YoY) were among the keyblue chip companies that registered strong earnings growth

Interestingly foreign investors bought nearly USD50mn worth of stocks out of whichnearly USD41.5mn worth of buying was made in the last ten days of the month while

individuals and companies were on the selling side BIPL has planned to issue rights shares up to PKR750mn, as the exemption granted by

the SBP for MCR expired on March 31 Rising inflation coupled with rupee depreciation minimized the continuous swift import of

Chinese brand mobiles and accessories in the first quarter of the 1QFY14 as the overalltelecom sector imports declined by 14.46 %

NFDC released its monthly report on 28th Oct, indicating urea sales have jumped 91%YoY to 504k tons while DAP sales were down 19% YoY during the month of Sep13

Foreigners aided the indexs growth and the market saw foreign buying worth $18million during the week

The country's liquid foreign reserves rose by US$267mn mainly due to arrival ofCollation Support Fund (CSF) inflows of US$322mn

Drug Regulatory Authority (DRA) will announce an increase in prices of genericpharmaceuticals next week

Expected submission of Pakistans request for the EU GSP Plus Status to the EUParliament later this month

The fertiliser sector was back in the limelight as resumption of regular gas supply tofertiliser plants meant a return to normal production levels, resulting in huge gains forEngro Fertilizers and Fatima Fertilizers. Fauji Fertilizer Company, which was lessaffected by the gas outages, also managed to post earnings above expectations,triggering buying in its stock

Pakistan State Oil, Bank Alfalah Limited, National Bank of Pakistan, Nishat ChunianLimited, Nishat Chunian Power Limited, Fatima Fertilizer, Maple Leaf Cement, EngroCorporation, Pakistan Petroleum Limited and Fauji Fertilizer Company were among theblue-chips, which announced their above expectation results

Top ten gainers of last week were: Colgate Palmolive, Century Paper, Nestle Pakistan, SiemensPak Engg., National Foods, Arif Habib Corp, Attock Cement Ltd, Allied Bank, J.D.W.Sugar and


5/6

Nishat Power Ltd.

Top ten losers of last week were: JS Bank Ltd, Jah.Sidd. Co., Netsol Technologies, TriPackFilms Limited, Shifa International Hospitals, Thal Limited, Azgard Nine, Cherat Cement,

Kohinoor Textile and TRG Pakistan Ltd.

Top ten volume leaders were: JSCL, PTC, BOP, ENGRO, NBP, FCCL, DGKC, EFOODS,

MLCF, and PSO.

Thank you very much for reading this article.

NOTE: The information posted in this blog (forum) is based on current affairs & investors point

of view. There may be discrepancy in the ground realities.

Written by: Rana Khurram

http://www.karachistockexchange.org/2013_11_01_archive.html

Monetary policy review

ByEditorialPublished: February 10, 2013

No one likes to admit failure. No one likes to accept defeat. But it seems that is exactly what theState Bank of Pakistan (SBP) has done. After going out on a limb and reducing the policy rate by

over 450 basis points over the past 18 months, it seems the regulator has admitted that the

strategy has failed.

In thelatest monetary policy announcement,the regulator has kept the policy rate, or in simpler

terms, the interest unchanged at 9.5 per cent. Consumer Price Index inflation went to a low of 6.9per cent last year but has now once again surged to 8.1 per cent. Core inflation is also inching

back up and it is very likely that it will have hit double digits by the time the next monetary

policy announcement is due.

The basic premise that the SBP had adopted was quite simple. It never openly admitted to this

but by drastically reducing the interest rate, it had hoped that banks would find it unattractive to

lend to the government and, in doing so, had hoped to achieve two things. On the one hand, ithad hoped that this might have some kind of a restrictive effect on runaway government

borrowing. On the other hand, it had hoped that the banks would instead start lending to the

private sector.
http://www.karachistockexchange.org/2013_11_01_archive.htmlhttp://www.karachistockexchange.org/2013_11_01_archive.htmlhttp://tribune.com.pk/story/504999/monetary-policy-review/http://tribune.com.pk/story/504999/monetary-policy-review/http://tribune.com.pk/author/79/editorial/http://tribune.com.pk/author/79/editorial/http://tribune.com.pk/story/504677/monetary-policy-state-bank-keeps-interest-rates-unchanged-at-9-5/http://tribune.com.pk/story/504677/monetary-policy-state-bank-keeps-interest-rates-unchanged-at-9-5/http://tribune.com.pk/story/504677/monetary-policy-state-bank-keeps-interest-rates-unchanged-at-9-5/http://tribune.com.pk/story/504677/monetary-policy-state-bank-keeps-interest-rates-unchanged-at-9-5/http://tribune.com.pk/author/79/editorial/http://tribune.com.pk/story/504999/monetary-policy-review/http://www.karachistockexchange.org/2013_11_01_archive.html


6/6

It has always been obvious that the task of containing the size of fiscal deficit and governments

borrowing requirements from the banking system is becoming more and more difficult, but it is

now equally obvious that despite all its efforts, the SBP has been unable to gain any kind ofcontrol over this.

The year-on-year growth in broad money, on average, has been almost 18 per cent againstaverage GDP growth of less than four per cent. This has left a very large gap for inflationary

pressures and the signs are already there with inflation once again creeping towards double

digits. Many fear that energy costs are not accurately represented in the calculation of inflation,which is why inflation is not already in double digits.

In comparison, growth fiscal borrowings from scheduled banks was 41.3 per cent on January 25.Over the last four years, fiscal borrowings from the scheduled banks for budgetary support have

grown by an average of around 60 per cent.

The average growth in credit to private businesses, on the other hand, has only been four per cent

during the same period. The end result is that the domestic debt has risen by 25.6 per cent onaverage, while private fixed investment has contracted by 9.4 per cent in the economy.

The SBP, without actually saying so, has admitted failure in its attempt to kick-start expansion of

private sector credit and to trigger investment and growth as a result of cuts in the interest rate.This rationale had been its main argument for lowering the interest rate.

That rationale was absent and quietly swept under the rug in the latest monetary policyannouncement.

However, it would be unfair to place the entire blame for the lack of private sector credit

expansion on the central bank. Other factors like energy shortages, the poor law and ordersituation and the unwillingness of industrialists to invest in this situation, or for banks to lend in a

stagnant economy are probably more to blame for the non-existent demand for credit.

The unchanged interest rate was not a surprise for anyone. What did catch many by surprise was

the narrowing of the interest corridor by 50 basis points from seven to 6.5 per cent and theindication that the SBP was going to limit Open Market Operations (OMO) that have been a

thorn of contention between the IMF and the Pakistan government, which wants a new

agreement. In the past year alone, the regulator has effectively pumped close to half a trillion

rupees into the market through OMOs.

The indication that this may be coming to an end could be a condition set by the IMF if there isto be any chance of a new agreement. But whether that really is the case, is anybodys guess.

Published in The Express Tribune, February 10th, 2013.

http://tribune.com.pk/story/504999/monetary-policy-review/

Documents

Monetory Policy Analysis