Sanie Khan
SBP raises MDR: impact on banking profits
In an effort to induce higher saving and incentivize commercial banks to increase private lending, the State Bank of Pakistan (SBP) has linked the minimum deposit rate (MDR) on saving deposits to its repo rate. This has effectively increased the rate by 50bps to 6.5% from 6% previously. The development was taken negatively by market participants with major banking stocks closing near their lower circuits.
However, we believe the reaction has been overplayed by the market and the actual impact on the profitability should be comparatively less than initially perceived. Assuming another 50bps hike in the discount rate (DR) by Nov’13, the development would reduce profitability by ~7% for 2014.
| EPS (Cy14) |
PRESENT |
BASE – OLD |
BASE – NEW 1 |
BASE – NEW 2 |
BASE – NEW 3 |
| Discount Rate |
9.50% |
10.0% |
10.0% |
10.5% |
11.0% |
| Saving Rate |
6.50% |
6.0% |
7.0% |
7.5% |
8.0% |
| NBP |
5.71 |
6.70 |
6.10 |
6.43 |
6.70 |
| HBL |
13.76 |
15.84 |
14.63 |
15.33 |
16.03 |
| UBL |
13.74 |
14.91 |
14.50 |
14.58 |
14.87 |
| MCB |
19.49 |
22.10 |
20.89 |
21.17 |
21.46 |
| ABL |
11.31 |
13.21 |
12.05 |
12.18 |
12.32 |
| BAFL |
3.18 |
3.74 |
3.46 |
3.61 |
3.79 |
| BAHL |
5.31 |
6.39 |
5.89 |
6.56 |
7.24 |
Syed Zaki Hussain
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