CS Banks - 28 Nov 2013

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27 November 2013
Asia Pacific/Pakistan
Equity Research
Regional Banks

Pakistan Banks Sector

UPGRADE RATING

Fundamentals support further re-rating
Figure 1: Profitability rebound on rising NIMs and improving asset quality
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
0%
5%
10%
15%
20%
25%
2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E
Earnings growth Gross NPL ratio NIMs (RHS)

Source: Company data, Credit Suisse estimates
Margins to expand. NIMs have bottomed out (4.5% in 2Q13) and are likely
to rise by 35-45 bp over the next 3-6 months given the rise in policy rates
and shift in liability mix to lower cost deposits. MCB and UBL shall benefit
most from NIM expansion given a high proportion of low cost deposits.
Loan growth to pick up, fiscal financing will remain. Macro outlook has
improved post political change with businesses ready to venture into new
projects. Banks are well placed to support the likely uptick in credit demand
(53% LDR) and we expect a three-year (2013-16) loan growth CAGR of 14%.
Moreover, fiscal financing will continue to support asset growth.
Asset quality improvements to continue. Deleveraging has led to asset
quality improvementsNPL reversals of PRs5.5 bn (7%) for UBL and MCB
in 9M13. Macro recovery will further support asset quality for private banks
with 100 bp decline in credit cost in 2014. This, along with margin expansion,
higher loan growth should drive a 2013-16 earnings CAGR of 17%.
Further re-rating of private banks, UBL top pick. We increase estimates
for UBL and MCB by 4-21% over 2013-15 and upgrade both banks to
OUTPERFORM with revised TPs of PRs170 (implied upside 34%) &
PRs350 (25% potential upside), respectively. While we upgrade the sector to
OVERWEIGHT, we maintain NETURAL on NBP given near term risk to its
earnings. Despite relative outperformance YTD, further re-rating of private
banks appears justified given rising margins with UBL and MCB best
positioned to leverage from improving business sentiment. UBL is our top
pick trading at a 2014E P/B of 1.4x, 7% yield and a potential return of 41%.
Research Analysts
Farhan Rizvi, CFA
65 6212 3036
farhan.rizvi@credit-suisse.com

Asia Financials Team
Sanjay Jain
(Head of Asia Financials Research,
China, Hong Kong)
Arjan van Veen
(Regional, China Insurance)
Gil Kim
(Korea)
Chung Hsu
(Taiwan)
Ashish Gupta
(India)
Teddy Oetomo
(Indonesia)
Danny Goh
(Malaysia)
Dan Fineman
(Thailand)
Thaniya Kevalee
(Thailand)
Anand Swaminathan
(Singapore)
Alvin Tan
(Philippines)
Farhan Rizvi
(Pakistan)
James Ellis
(Australia)
Jarrod Martin
(Australia)
27 November 2013
Pakistan Banks Sector 2
Focus charts
Figure 2: Margins have bottomed and should rise from
4Q13 given the uptick in policy rates
Figure 3: Improving business climate to lead a revival in
credit growth
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2009 2010 2011 2012 2013E 2014E 2015E
Asset yields NIM (RHS) Regional NIMs avg. (RHS)

-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
2007 2008 2009 2010 2011 2012 2013E2014E2015E2016E
Gross loans Loan growth
PRs mn

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 4: Low LDR to provide room for new lending
though fiscal financing will continue
Figure 5: NPLs have peaked with reversals for private
sector banks and declining credit costs
20.0
30.0
40.0
50.0
60.0
70.0
250,000
500,000
750,000
1,000,000
1,250,000
1,500,000
2009 2010 2011 2012 2013E 2014E 2015E 2016E
Inv. in GoP securities (LHS) LDR IDR
PRs mn (%)

65.0%
70.0%
75.0%
80.0%
85.0%
90.0%
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
2009 2010 2011 2012 2013E 2014E 2015E
Gross NPL ratio Credit cost Coverage (RHS)


Figure 6: Earnings momentum for private banks to pick
up with a three-year CAGR of 17%
Figure 7: Banking sector performed well in a rising
interest rate environment with low LDR during 2004-06
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2010 2011 2012 2013E 2014E 2015E 2016E
PRs mn
But will pick up with a 3 year (2013-16)
CAGR of 17%
Earnings growth subdued in 2010-
13

0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
3,500.0
4,000.0
4,500.0
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Banking Stock performance (LHS) 6M KIBOR
Stock performance was
correlated with rising KIBOR
with low LDR (<50%)
BoP crisis led to
market crash
(LDR @76%)
Banking stocks have re-rated
in line with broader market

Source: Company data, Credit Suisse estimates Source: Bloomberg, SBP, Credit Suisse estimates
27 November 2013
Fundamentals support further re-
rating
Margins have bottomed out
The monetary easing cycle has reversed with two consecutive hikes of 50 bp over as
many months and a further 50-100 bp hike likely in Jan 2014 as the central bank looks to
tackle an uptick in CPI. This should drive asset yields and NIMs higher over the next few
quarters. We believe NIMs have bottomed out (4.5% in 3Q13) and should rise by 35-45 bp
over the next one to two quarters. Margin expansion will be also be driven by the shift in
liability mix to lower cost deposits as banks have successfully adjusted their liability profile
to minimise the impact of 500 bp of policy easing between Jul-2011 and Jun-2013. MCB
should benefit the most from this margin expansion given it has the highest proportion of
static/low cost deposits, though the decision by SBP to link minimum profit rate on savings
accounts (including term deposits) with changes in policy rate has diluted this benefit.
Loan growth to pick up, budgetary funding to remain
Pakistan's macro outlook has improved with the change in political set-up and while the
reform process has been slow thus far, we believe 2014 will be a watershed year with a
flurry of economy activity led by the energy, telecommunication, textiles and cement
sectors. Banks are well placed to meet the rising demand from corporates and considering
low leverage (LDR of 53%) there is huge scope to fund new projects. We expect loan
growth to hit double digits in 2014 with a three-year (2013-16) CAGR of 14%. Moreover,
despite fiscal consolidation measures undertaken by the new government under IMF
supervision, financing of the budget deficit will continue to fall on the banking sector, at
least in the short run. We expect banks to remain active in the treasury market which will
continue to be a key source of asset growth. An uptick in policy rates, particularly, make
investment in PIBs (yielding 11.8-13.0%) an attractive proposition.
Asset quality improvement to support earnings
Substantial deleveraging of the balance sheet (LDRs at a ten-year low of 53%) has led to
asset quality improvements with NPL reversals of PRs5.5 bn (7%) for UBL and MCB in
9M13 as against an average annual NPL creation of PRs9.2 bn over 2009-12. An
improvement in macro fundamentals in the backdrop of economic reforms and better risk
management will continue to drive improvements in asset quality of top private banks in
our view, despite a likely uptick in policy rates with an estimate 100 bp decline in the NPL
ratio in 2014. This, along with expansion in margins, robust growth in non-funded income
and higher loan growth, should drive a strong earnings momentum over the medium term
with three-year (2013-16) earnings CAGR of 17%.
Further re-rating of private banks, UBL top pick
We upgrade the sector to OVERWEIGHT (MARKET WEIGHT) and increase our estimates
for UBL and MCB by 4-21% over 2013-15 on account of higher margins, lower provisions,
more upbeat loan growth and robust non-funded income. UBL is our top pick with a
revised TP of PRs170 (34% upside), while we upgrade MCB to OUTPERFORM (revised
TP of PRs350). We believe likely improvement in macros support a further re-rating of the
sector given low leverage, strong adequacy and cleaner balance sheet, with UBL offering
an attractive value, trading at a 2014E P/B of 1.4x with 7% dividend yield and offering a
potential total return of 41%. However, we maintain our NETURAL stance on NBP
( revised TP PRs53) as we believe negative surprises on asset quality are likely to
continue in the near term as the new management stringently reviews the loan book which
may result in subjective downgrades and build-up of further provisioning buffers.
27 November 2013
Valuation comparison
Figure 8: Pakistan banksvaluation comparison

2011 2012 2013E 2014E 2015E

2011 2012 2013E 2014E 2015E
Core profit (PRs mn)

Core profit growth (%)

NBP 16,964 16,163 8,120 14,850 16,956 NBP -7.3 -4.7 -49.8 82.9 14.2
UBL 15,500 18,007 17,457 20,369 24,705 UBL 10.3 16.2 -3.1 16.7 21.3
MCB 19,274 21,153 21,774 25,462 29,531 MCB 2.2 9.7 2.9 16.9 16.0
P/E (x) P/B(x)
NBP 6.3 6.8 13.6 7.5 6.5 NBP 0.8 0.7 0.8 0.7 0.7
UBL 10.0 8.6 8.8 7.6 6.2 UBL 1.9 1.7 1.5 1.4 1.2
MCB 14.9 13.6 13.2 11.3 9.7 MCB 3.1 2.7 2.5 2.3 2.0
Core ROA (%) Core ROE (%)
NBP 1.6 1.3 0.6 1.0 1.0 NBP 13.0 11.4 5.6 10.4 11.1
UBL 2.1 2.2 1.8 1.9 2.0 UBL 21.0 21.0 18.2 19.3 20.8
MCB 3.1 3.0 2.8 3.0 3.1 MCB 22.3 21.5 19.8 21.2 21.8
Dividend yield (%) Market cap/PPOP (x)
NBP 14.4 13.5 6.7 9.6 9.6 NBP 3.3 3.9 5.8 5.1 4.6
UBL 6.0 6.7 6.8 7.2 7.6 UBL 5.1 5.2 6.2 5.1 4.2
MCB 4.2 4.6 4.6 4.9 5.3 MCB 7.0 8.4 9.1 7.6 6.4
Operational comparison
Figure 9: Pakistan banksoperational comparison

2011 2012 2013E 2014E 2015E

2011 2012 2013E 2014E 2015E
Net int income growth (%)

NIM (%)
NBP 8.3 -6.7 -14.7 13.7 9.6 NBP 5.2 4.5 3.4 3.6 3.6
UBL 15.6 -2.2 -5.3 16.6 17.6 UBL 6.2 5.5 4.6 4.8 5.0
MCB 21.1 -8.2 -6.8 16.4 14.6 MCB 8.6 6.8 5.8 6.2 6.3
Loan yield (%) Cost of deposits (%)
NBP 11.3 10.9 9.2 10.3 10.4 NBP 5.2 5.3 4.9 5.6 5.6
UBL 10.8 9.9 8.1 9.1 9.5 UBL 4.1 4.2 3.8 4.3 4.3
MCB 14.1 12.4 10.7 11.9 11.9 MCB 4.4 4.4 4.2 4.8 4.8
Non int. income growth (%) Cost-income (%)
NBP 7.8 27.6 8.0 4.8 8.8 NBP 53.2 62.5 62.8 62.9 60.0
UBL 25.7 34.7 6.1 5.0 11.3 UBL 43.4 48.1 47.6 47.6 45.5
MCB 27.9 15.8 22.5 14.5 15.4 MCB 35.7 38.4 36.1 34.4 32.8
PPOP growth (%) Loan growth (%)
NBP 4.8 6.7 10.8 4.6 13.8 NBP 10.0 23.3 9.0 10.5 14.0
UBL 21.9 -3.8 14.0 4.4 12.9 UBL -0.6 11.7 7.0 12.0 16.0
MCB 18.8 -2.2 19.1 7.9 11.6 MCB -9.5 5.8 4.0 11.0 16.0
Deposit growth (%) Loan deposit ratio (x)
NBP 11.4 11.9 11.5 10.0 11.0 NBP 56.6 63.3 61.2 61.6 63.9
UBL 11.3 14.2 14.5 15.0 16.0 UBL 53.1 60.6 57.9 57.4 57.9
MCB 13.9 11.0 11.5 13.5 14.5 MCB 46.0 44.0 41.4 40.9 41.8
NPLs / loans (%) Loan loss coverage (%)
NBP 14.9 12.2 12.3 12.2 11.2 NBP 76.4 82.0 89.8 88.8 89.0
UBL 14.0 14.0 13.0 11.7 10.4 UBL 80.1 78.0 80.8 82.4 82.5
MCB 10.7 9.7 9.1 8.1 7.0 MCB 83.8 89.2 87.4 86.7 86.4
Reported Tier 1 CAR (%) Equity Tier 1 CAR (%)
NBP 13.8 13.1 11.3 10.9 10.3 NBP 13.8 13.1 11.3 10.9 10.3
UBL 10.5 10.7 11.3 11.5 11.5 UBL 10.5 10.7 11.3 11.5 11.5
MCB 20.8 20.8 22.0 21.6 21.2 MCB 20.8 20.8 22.0 21.6 21.2
27 November 2013
Margins have bottomed out
The monetary easing cycle has reversed with two consecutive hikes of 50 bp each in Sept
and Nov-2013 and a further 50-100 bp hike likely in the next policy review (Jan-2014) as
the central bank looks to tackle an upsurge in CPI. This should drive asset yields and
NIMs higher over the next few quarters. We believe NIMs have bottomed out (4.5% in
3Q13) and should rise by 35-45 bp over the next one to two quarters. Margin expansion
will be also be driven by the shift in liability mix to lower cost deposits as banks have
successfully adjusted their liability profile to minimise the impact of 500 bp of policy easing
between Jul-2011 and Jun-2013. MCB should benefit the most from this margin expansion
given it has the highest proportion of static/low cost deposits, though the decision by SBP
to link minimum profit rate on savings accounts with changes in policy rate have diluted
this benefit.
Asset yields to rise amid monetary tightening
The central bank is likely to maintain its monetary tightening stance due to an upsurge in
inflationary pressure (Oct CPI of 9.1%) which should drive yields higher over the short to
medium term. Recent discussions with the IMF on the first review of the new Extended
Fund Facility (EFF) programme also focused on more effective monetary management to
support the exchange rate. Hence, the SBP raised policy rates by 50 bp on 13 November,
with secondary market yields moving in the same direction prior to the policy decision (T-
bill yields up 40 bp over the past 1M). Given further upward bias to the CPI (CS estimates
of 10.5% in December) due to pass-through of electricity tariffs, PKR depreciation and
rationalisation of gas prices in December, we expect the central bank to progressively
raise rates by a further 50-100 bp by Mar 2014. This bodes well for the interest income
outlook for our coverage banks, as asset growth is likely to remain strong led by a
combination of a pick-up in credit demand and borrowing appetite of the government for
budgetary financing.
Figure 10: Inflationary pressures have led to an uptick in
policy rates with a corresponding increase in KIBOR
Figure 11: Secondary market yields have risen sharply in
anticipation of monetary tightening by the SBP
3.5
5.0
6.5
8.0
9.5
11.0
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Headline CPI Policy rate 6M KIBOR
(%)

8.00%
9.00%
10.00%
11.00%
12.00%
13.00%
14.00%
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6M T-BILL 10 YR PIB Policy rate

Source: FBS, SBP, Credit Suisse estimates Source: SBP, Bloomberg
Asset yields to expand in
2014 as KIBOR and
treasury yields are up 80-
200 bp since July 2013
27 November 2013
MCB to benefit the most from higher interest rate
We estimate the six-month KIBOR to average 10.3% in 2014 (9.2% 2013E), with MCB
benefitting the most given its higher proportion of interest yielding assets (84% of total) and
little international diversification. We forecast asset yields for MCB to expand 114 bp to
10.9% in 2014, leading to a 19% growth in the banks interest income. In contrast, asset
yields for UBL are expected to rise by 62 bp on its higher international loan book (~25% of
total) and for NBP by 90 bp due to its relatively lower earnings assets.
Figure 12: MCB will enjoy the highest growth in net
interest income
Figure 13: with the highest interest yields amongst peer
banks
10%
12%
13%
15%
16%
18%
0
9,000
18,000
27,000
36,000
45,000
MCB UBL NBP
2013E 2014E Growth (RHS)
PRs mn

-
2.0
4.0
6.0
8.0
10.0
12.0
MCB UBL NBP
2013E 2014E
(%)

.but funding cost to rise by a lower quantum
The top-tier Pakistan banks have historically enjoyed very high NIMs (highest in the
region) due to a high proportion of low-cost CASA deposits (76%), which ensured that an
incremental hike in funding cost was far lower than the corresponding rise in lending rates
and treasury yields. Cost of funding has remained low largely due to the fact that a large
proportion of accounts are used primarily for transactional purposes. This advantage has
started to disappear as the central bank first raised the minimum deposit rate on savings
account (36% of total deposits) to 6% (5% earlier) in April 2012 and then linked the pricing
of savings, including term deposits, to the quantum of rate hike (Sept-13). As a result,
margins fell to ten-year lows in 2Q13 as the fall in asset yields coincided with a hike in
profit rate on savings deposits.
Despite these changes in deposit pricing structure, cost of funding is likely to increase at a
lower quantum as banks continue to hold a sizeable amount of non-remunerative current
deposits (35%) while adjustment to term deposits also takes place with a lag. Therefore,
we expect funding cost to rise by 15-40 bp in 2014, significantly lower than the increase in
asset yields (80 bp) helping margins to expand by an average 24 bp YoY, with MCB
benefiting the most due to its high proportion of current account (36%) and lowest term
deposit base of 12% with an expected increase of 46 bp during 2014E.
Despite regulatory changes
to minimum deposit rates
cost of funds will rise at a
lower quantum
27 November 2013
Figure 14: MCB has lowest proportion of expensive term
deposits
Figure 15: NIMs have remained strong due to high CASA
(%)
0%
10%
20%
30%
40%
50%
60%
MCB UBL NBP Sector average
Current Savings Term & others

0.0
1.5
3.0
4.5
6.0
7.5
9.0
2011 2012 2013E 2014E 2015E
MCB UBL NBP

Source: Credit Suisse estimates (2011E) Source: Company data, Credit Suisse estimates
Figure 16: Pakistan enjoys one of the highest NIMs in the
region
Figure 17: and has continued to do so historically as
well
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
ID PK PH IND IN TH CN MY KR AU HK SG TW

-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2008 2009 2010 2011 2012 2013E 2014E 2015E
Pakistan Regional average

Source: Credit Suisse estimates Source: Company data, Credit Suisse estimates
27 November 2013
Loan growth to pick up, budgetary
funding to remain
Pakistan's macro outlook has improved with the change in political set-up and while the
reform process has been slow thus far, we believe 2014 will be a watershed year with a
flurry of economy activity led by the energy, telecommunication, textiles and cement
sectors. Banks are well geared to meet the rising demand from corporates and
considering the low leverage (LDR of 53%) for the sector there is huge scope to fund new
projects. We expect loan growth to hit double digits in 2014 with a three-year (2013-16)
CAGR of 14%. Moreover, despite fiscal consolidation measures undertaken by the new
government under IMF supervision, financing of the budget deficit will continue to fall on
the banking sector, at least in the short run. We expect banks to remain active in the
treasury market which will continue to be a key source of asset growth. An uptick in policy
rates particularly make investment in PIBs (yielding 12-13%) an attractive proposition.
Macros gradually stabilising
Macros are gradually showing signs of stability led by improvements on the fiscal side as
better revenue administration measures coupled with rationalisation of electricity tariffs
help to contain deficit in 1Q FY14. These measures have been acknowledged and
applauded by the IMF in the first review of the EFF programme (1
st
week November) and,
with no let-up in the pressure on quantitative targets (launch of initiatives to enhance
indirect taxes and gas rationalisation plan to generate 0.4% of GDP savings), further
consolidation of the fiscal account is expected. The government successfully met all
quantitative IMF targets for Sept-2013 except the target on net international reserves
which shall pave the way for release of the next tranche of US$547 mn in Dec-2013.
Figure 18: Pakistan successfully met all of IMF's quantitative targets for Sept-2013
except floor on net international reserves

Sep-13 Dec-13 Mar-14 Jun-14
Floor on net international reserves (US$ mn) (2,499) (2,090) (141) 2,532
Ceiling on net domestic assets of SBP (PRs bn) 2,877 2,901 2,571 2,227
Ceiling on overall budget deficit (PRs bn) 419 882 1,209 1,464
Ceiling on SBP's stock of net foreign currency swaps (US$ mn) 2,255 2,005 2,005 1,755
Ceiling on net government borrowing from SBP (PRs bn) 2,690 2,560 2,390 2,240
Source: IMF
Figure 19: Disbursements under IMF EFF programme to lend support to forex reserves
Date of disbursement Amount (SDR mn) Amount (US$ mn)
4-Sep-13 360 544
2-Dec-13 360 547
2-Mar-14 360 547
2-Jun-14 360 547
2-Sep-14 360 547
2-Dec-14 360 547
2-Mar-15 360 547
2-Jun-15 360 547
2-Sep-15 360 547
2-Dec-15 360 547
2-Mar-16 360 547
2-Jun-16 360 547
2-Aug-16 73 111
Note: SDR = Special Drawing Rights. Source: IMF

Macro stabilisation
measures will bear fruit in
2014
27 November 2013
Moreover, the privatisation programme for PSEs starting next year will further reduce the
government's subsidy burden. Though inflationary pressures are on a rising trend due to a
reduction in energy subsidies, further tightening of monetary policy will lend support to
PKR in the short to medium term. Forex reserves are also expected to see a gradual build-
up over the next 3-6 months as outstanding proceeds from Etisalat (US$800 mn), CSF
support from the US and auction of 3G licences materialise, while return to the
international debt markets next year is likely to lend further support.
Figure 20: Tax revenue growth has recovered sharply in 1Q14 after lacklustre
performance in FY13
14.8%
15.6%
16.7%
21.0%
3.7%
17.1%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
FY09 FY10 FY11 FY12 FY13 1QFY14

Source: FBR, Credit Suisse estimates
Low leverage provides room for future lending
Pakistan banks embarked on a deleveraging exercise post the balance of payment crisis
in 2008 which resulted in severe asset quality deterioration amid a sharp hike in policy
rates. Hence, exposure to risky consumers and small and medium enterprises (SMEs)
was aggressively shed with increasing focus on high yielding risk-free treasuries. As a
result, LDR had fallen to 53% from a peak of 74% (2008) with a corresponding increase in
investment-to-deposit ratio (IDR) which widened by 20% to 46% over the same period.
Given low leverage and relatively clean balance sheets, there remains huge room for
banks to lend to the corporate sector as the credit cycle revives from next year, in our view.
The new government has been welcomed by the business community at large who
appears ready to undertake new projects across different sectors, with a particular focus
on the energy sector. Multi-billion dollar coal conversion projects are in the pipeline while
the telecommunications, cement, textile and chemical sectors are also expected to
leverage their balance sheet for new expansions. This should propel loan growth to
approximately 10% in 2014E with a three-year (2013-16E) CAGR of 14%.
LDRs at a decade low of
53% provide room to banks
to meet pick-up in credit
demand
27 November 2013
Figure 21: Loan growth nosedived post 2008 but is
expected to pick up
Figure 22: though banks' investment in treasures will
continue
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gross loans Loan growth
PRs mn

20.0
30.0
40.0
50.0
60.0
70.0
250,000
500,000
750,000
1,000,000
1,250,000
1,500,000
2009 2010 2011 2012 2013E 2014E 2015E 2016E
Inv. in GoP securities (LHS) LDR IDR
PRs mn

Pakistan remains the most unleveraged economy in the region
The lower degree of leverage in the banking sector can also be gauged from the loan-to-
GDP ratio, which has fallen almost 9 pp below its ten-year (2003-12) average of 25%. As a
result, Pakistan continues to remain the most unleveraged economy in the region with a
loan-to-GDP ratio of 16% (Sep 2013), which is less than one third of India (53%) and well
below even its closest peersIndonesia (33%) and the Philippines (33%).
Figure 23: Loan-to-GDP ratio has fallen well below the ten-
year average
Figure 24: Pakistan remains the most unleveraged
economy in the region (loan to GDP %)
12%
16%
20%
24%
28%
32%
D
e
c
-
0
1
D
e
c
-
0
2
D
e
c
-
0
3
D
e
c
-
0
4
D
e
c
-
0
5
D
e
c
-
0
6
D
e
c
-
0
7
D
e
c
-
0
8
D
e
c
-
0
9
D
e
c
-
1
0
Loan to GDP Linear (Loan to GDP)

0
50
100
150
200
250
300
HK SG TW AU CN MY JP KR TH IN ID PH PK

Source: FBS, SBP, Credit Suisse estimates Source: SBP, CEIC, BIS, Credit Suisse estimates

Loan-to-GDP of 16% makes
Pakistan the most
unleveraged economy in the
region by a distance
27 November 2013
Figure 25: Low leverage is also reflected by lowest LDR
ratio amongst regional peers (%)
Figure 26: Deposit to GDP is also the lowest regionally
0
20
40
60
80
100
120
140
AU KR TH SG ID TW MY IN CN PH JP HK PK

0
50
100
150
200
250
300
350
400
450
HK SG TW CN MY JP AU TH KR IN PH ID PK
Deposit to GDP %

Source: SBP, CEIC, BIS, Credit Suisse estimates Source: SBP, CEIC, BIS, Credit Suisse estimates
Budgetary financing will continue to drive near term
asset growth
Given persistent demand from the government for budgetary support, Pakistan banks are
likely to continue with their strategy of investing in risk-free treasuries at least in the short
term. The commercial banks sector financed PRs939 bn (51%) of the budget deficit in
FY13 and based on the budgetary outlay for FY14, we expect the sector to finance
approximately PRs900 bn (51%) of the deficit during the next fiscal. Our analysis is based
on limited availability of external funding over the next 3-6 months with major infrastructure
and other projects, including privatisation deals, likely to materialise in FY15. Fiscal
financing (albeit at a lower quantum) over the next 6-12 months, together with an uptick in
credit demand will allow banks to aggressively approach deposit mobilisation and balance
sheet growth.
Figure 27: Banks have been sharing a bulk of the fiscal
financing over the past few years
Figure 28: and will continue to do so in FY14 as well
0.0
0.8
1.6
2.4
3.2
4.0
(150,000)
50,000
250,000
450,000
650,000
850,000
1
Q
F
Y
1
2
2
Q
F
Y
1
2
3
Q
F
Y
1
2
4
Q
F
Y
1
2
1
Q
F
Y
1
3
2
Q
F
Y
1
3
3
Q
F
Y
1
3
4
Q
F
Y
1
3
Bank Non bank
External Fiscal deficit (% of GDP)
PRs mn
%

Bank
58%
Non Bank
32%
External
10%
PRs 569 bn
PRs 1,022 bn
PRs 170 bn

Source: MoF, Credit Suisse estimates Source: Credit Suisse estimates
Budgetary financing will
support asset growth over
the short to medium term
27 November 2013
Deposits and investment growth estimates tweaked
While deposit mobilisation is generally correlated with the borrowing appetite of the private
sector, rising government financing needs had incentivised banks to adopt a more
aggressive approach towards balance sheet growth despite lacklustre private sector
demand for credit. As a result, average deposit growth was 15% over 2009-12 as against
lending growth of 5%. Given rising inflationary pressures and upward revision in our credit
growth estimates, we are tweaking our deposit and investment growth estimates over
2014-16E. We are lowering estimates, however, for 2013 due to weaker mobilisation in 9M
amid political uncertainty in first half but expect a stronger growth outlook from 2014.
Figure 29: Revision in deposit growth, investment growth and NIMs estimates
New estimates Old estimates % difference
2013 2014 2015 2013 2014 2015 2013 2014 2015
Deposit growth (%)
-NBP 11.5 10.0 11.0 13.0 13.0 13.0 (1.5) (3.0) (2.0)
-UBL 14.5 15.0 16.0 14.0 13.5 14.0 0.5 1.5 2.0
-MCB 11.5 13.5 14.5 12.5 13.0 14.0 (1.0) 0.5 0.5
Investment growth (%)
-NBP 5.6 10.4 11.1 10.1 11.0 11.5 (4.5) (0.6) (0.4)
-UBL 18.2 19.3 20.8 17.5 17.4 17.6 0.7 1.9 3.2
-MCB 19.8 21.2 21.8 22.8 21.3 20.6 (3.0) (0.1) 1.3
Net interest margin (%)
-NBP 3.4 3.6 3.6 3.8 3.9 4.0 (0.4) (0.4) (0.4)
-UBL 4.6 4.8 5.0 4.6 4.6 4.6 (0.0) 0.3 0.4
-MCB 5.8 6.2 6.3 5.6 5.5 5.5 0.2 0.8 0.8
Source: Credit Suisse estimates
27 November 2013
Asset quality improvements to
augment earnings
Substantial deleveraging of the balance sheet (LDRs at a decade low of 53%) has led to
asset quality improvements with NPL reversals of PRs5.5 bn (7%) for UBL and MCB in
9M13 as against an average annual NPL creation of PRs9.2 bn over 2009-12.
Improvement in macro fundamentals in the backdrop of economic reforms and better risk
management will continue to drive improvements in asset quality of top private banks in
our view, despite a likely uptick in policy rates with an estimated 100 bp decline in NPL
ratio in 2014. This, along with expansion in margins, robust growth in non-funded income
and higher loan growth, should drive a strong earnings momentum for private sector banks
over the medium term with three-year (2013-16) earnings CAGR of 17%.
NPL reversals to continue as macros improve
NPLs for private sector banks appear to have peaked out with net reversals of PRs5.6 bn
for our coverage banks in 9M 2013. The improvements in NPLs have been driven by a
change in the loan portfolio mix, more stringent lending procedures and improvement in
macro indicators. 9M 2013 has witnessed significant NPL reversals, particularly for UBL
(PRs4.9 bn) with reductions in both domestic and international NPLs. Clearance of the
circular debt situation in the energy chain and better electricity supply resulted in NPL
reversals domestically, while an improving business climate in the Middle East led to
higher recoveries on the international portfolio. At the same time, coverage ratio has
improved to 89%, the highest level in more than a decade. MCB has also recorded
substantial provisioning reversals with net credit reversal of 80 bp or PRs2.0 bn in 9M13.
We expect this trend to continue as economic recovery gathers pace with the business-
friendly policies of the government and better energy supply supporting industrial activity
(1Q14 LSM growth of 8.4% is a testament to that).
Figure 30: NPLs have peaked for MCB and UBL with substantial reversals for UBL in 2Q
and 3Q
-7,500
-5,500
-3,500
-1,500
500
2,500
4,500
6,500
8,500
Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13
MCB UBL NBP Industry
PRs mn

Source: Company data
NPL and credit cost
reversals for private sector
banks will continue
27 November 2013
Figure 31: Quarterly NPL movement (LHS) and NPL ratio
(RHS)
Figure 32: Credit costs on the decline as coverage
improves
0.0
3.0
6.0
9.0
12.0
15.0
18.0
21.0
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
S
e
p

-
1
1

D
e
c

-
1
1

M
a
r

-
1
2

J
u
n

-
1
2

S
e
p

-
1
2

D
e
c
-
1
2

M
a
r
-
1
3

J
u
n
-
1
3

S
e
p
-
1
3
MCB UBL NBP MCB UBL NBP
PRs mn (%)

(100)
(50)
0
50
100
150
200
250
2010 2011 2012 2013E 2014E 2015E 2016E
MCB UBL NBP Average
bp of loans

Source: Company data Source: Company data, Credit Suisse estimates
Earnings to grow at a three-year (2013-16) CAGR of
17%
We expect double-digit asset growth, higher margins, robust growth in non-funded income
and lower provisions/reversals to propel the private sector banks earnings to a CAGR of
17% during 2013-16E with an average ROE of 21% (overall sector ROE of 18%). This
appears favourable compared with the average earnings growth of 4% over the preceding
four years. The third quarter results did, indeed, show an improvement in margins and
provisioning reversals for UBL and MCB and, given the uptick in recent policy rates and
gradual improvement in macros and robust growth, we expect banks to continue to post
strong results in coming quarters. This should help ROEs to expand to 22% by 2017
(2013: 19%), while the ROAs are estimated to rise to 2.6% (2013E: 2.3%).
Figure 33: Three-year (2013-16E) earnings CAGR of 17%
after subdued earnings over 2010-13E...
Figure 34: will drive expansion in ROEs and ROAs
-8%
-2%
4%
10%
16%
22%
28%
10,000
19,000
28,000
37,000
46,000
55,000
64,000
2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E
Earnings Growth
PRs mn

2.1%
2.2%
2.3%
2.4%
2.5%
2.6%
2.7%
15.0%
16.5%
18.0%
19.5%
21.0%
22.5%
24.0%
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
E
2
0
1
4
E
2
0
1
5
E
2
0
1
6
E
2
0
1
7
E
ROE (%) ROA (%) (RHS)

Significant earnings upswing
with 17% CAGR over 2013-
16E to help ROEs to expand
to 22%
27 November 2013
Comfortably placed for Basel III transition
Pakistani banks under our coverage are well capitalised with Tier 1 ratios of 11-22% under
Basel II. The banks are also comfortably placed on the MCR (Minimum Capital
Requirements) and leverage ratios required under the new Basel III (to be implemented in
a phased manner starting Dec-2013). Our initial estimates suggest that required
adjustment for Basel III will be around 2-4% across the sector which is not very significant
considering the high adequacy levels (total CAR of 17%). Going forward, despite the
expected rise in leverage ratios, we believe a very strong earnings momentum (21%
CAGR over 2013-16E) will help keep Tier 1 ratios at comfortable levels.
Figure 35: Capital adequacy ratio under Basel II remains comfortable with low leverage
providing significant buffer for Basel III adjustments (2013E)
-
2.0
4.0
6.0
8.0
10.0
12.0
0%
5%
10%
15%
20%
25%
MCB UBL NBP
Tier 1 CAR Leverage (x) RHS
(x)


Coverage banks have
comfortable adequacy levels
27 November 2013
Re-rating of private sector banks,
UBL top pick
Earnings raised by 4-21% over 2013-15E
We are increasing earnings estimates for MCB and UBL by 4-21% over 2013-15 on account
of higher margins, lower provisions, expansion in NIMs and more upbeat loan growth outlook.
In contrast, we have slashed estimates for NBP by 19-48% on account of more aggressive
provisioning as we believe asset quality concerns are likely to continue in the near term, as
the new management stringently reviews the asset book which is likely to result in subjective
downgrades and build-up of necessary provisioning buffers. We have raised margins for
MCB and UBL by 18-81 bp, tweaked deposit growth estimates by --1-2% to 2% over 2013-
15. Moreover, we have lowered our credit cost estimates for UBL and MCB by 24-142 bp in
view of better recoveries over the short to medium term. Private banks under our coverage
are geared for a three-year earnings CAGR of 17% over 2013-16E with ROEs rising to 22%
by 2017.
Figure 36: Summary of revision in key drivers and earnings estimates
New estimates Old estimates % diff
2013 2014 2015 2013 2014 2015 2013 2014 2015
Deposit growth (%)
-NBP 11.5 10.0 11.0 13.0 13.0 13.0 (1.5) (3.0) (2.0)
-UBL 14.5 15.0 16.0 14.0 13.5 14.0 0.5 1.5 2.0
-MCB 11.5 13.5 14.5 12.5 13.0 14.0 (1.0) 0.5 0.5
Investment growth (%)
-NBP
5.6 10.4 11.1 10.1 11.0 11.5 (4.5) (0.6) (0.4)
-UBL
18.2 19.3 20.8 17.5 17.4 17.6 0.7 1.9 3.2
-MCB
19.8 21.2 21.8 22.8 21.3 20.6 (3.0) (0.1) 1.3
Net interest margin (%)
-NBP 3.4 3.6 3.6 3.8 3.9 4.0 (0.4) (0.4) (0.4)
-UBL 4.6 4.8 5.0 4.6 4.6 4.6 (0.0) 0.3 0.4
-MCB 5.8 6.2 6.3 5.6 5.5 5.5 0.2 0.8 0.8
Credit cost (bp)
-NBP 203.7 86.8 56.9 60.0 53.0 47.0 1.4 0.3 0.1
-UBL 47.6 41.7 35.8 162.0 116.3 104.0 (1.1) (0.7) (0.7)
-MCB (63.7) (17.8) 10.4 78.1 50.4 33.9 (1.4) (0.7) (0.2)
Earnings (PRs mn)
-NBP 8,120 14,850 16,956 15,505 18,242 22,241 (47.6) (18.6) (23.8)
-UBL 17,457 20,369 24,705 16,738 18,116 20,485 4.3 12.4 20.6
-MCB 21,774 25,462 29,531 20,333 22,733 25,892 7.1 12.0 14.1
Total 47,351 60,681 71,192 52,577 59,091 68,618 (9.9) 2.7 3.8
Target price for UBL and MCB raised on higher
sustainable ROEs and further re-rating
Given improving macro fundamentals, asset quality enhancements and a stronger
earnings growth outlook, we are upgrading our ratings for UBL to OUTPERFORM from
Neutral and MCB to OUTPERFORM from Underperform with revised target prices of
PRs170 and PRs350, respectively. However, we maintain our NEUTRAL stance on NBP
with a revised TP of PRs53 given likely negative surprises on asset quality as the new
management looks to clean up the balance sheet. We have assumed sustainable ROEs of
22%, 20.5% and 13% (20%, 18% and 13% previously) for MCB, UBL and NBP
respectively, to arrive at our new target prices under the Gordon growth model. Moreover,
given stronger balance sheets, low leverage and better loan growth outlook, we have
A 4-21% earnings revision
over 2013-15E on higher
margins, loan growth and
lower credit costs
27 November 2013
applied a 20% and 30% premium respectively to our new target prices under the Gordon
growth model. MCB has historically always traded at a 25-30% premium to its implied
valuations due to high capital adequacy, better asset quality and stronger deposit
franchise, while we believe UBL now justifies a valuation premium considering
improvement in asset quality and business consolidation over the past five years.
Figure 37: Summary of target price and rating changes
Current price Target price (PRs) Upside COE Sustainable Rating 2014E
PRs New Old (%) (%) ROE (%) New Old P/B (x) P/E (x)
MCB 278.92 350 168 25 17.4 22.5 O U 2.3 11.3
UBL 126.40 170 85 34] 17.4 20.5 O N 1.4 7.6
NBP 54.67 53 42 (3) 17.7 13.5 N N 0.7 7.5
Source: Bloomberg, Credit Suisse estimates
Figure 38: Banking stocks have done well in a rising interest rate environment when
LDRs have been low reflected by strong performance between 2004 and 2006
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
3,500.0
4,000.0
4,500.0
M
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N
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3
Banking Stock performance (LHS) 6M KIBOR
Stock performance was correlated with
rising KIBOR as LDRs were low (<50%)
BoP crisis led to higher rates
and broader equity market
crash (LDR @ 76%)
Banking stocks have re-rated in line with
boader market despite lower rates


Figure 39: Historical and current forward P/B multiples (x) Figure 40: Historical and current P/E multiples (x)
0.0
1.0
2.0
3.0
4.0
5.0
N
o
v
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0
5
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v
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6
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0
7
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8
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9
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0
N
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v
-
1
1
N
o
v
-
1
2
N
o
v
-
1
3
UBL MCB NBP
P/B (x)

0.0
5.0
10.0
15.0
20.0
25.0
N
o
v
-
0
5
N
o
v
-
0
6
N
o
v
-
0
7
N
o
v
-
0
8
N
o
v
-
0
9
N
o
v
-
1
0
N
o
v
-
1
1
N
o
v
-
1
2
N
o
v
-
1
3
UBL MCB NBP
(x)

Source: Bloomberg, Credit Suisse estimates Source: Bloomberg, Credit Suisse estimates
27 November 2013
Figure 41: UBL still trades at a discount to its historical
average P/B (x)
Figure 42: .while premium valuations for MCB are
justified given high adequacy and low leverage
0.0
0.6
1.2
1.8
2.4
3.0
3.6
4.2
N
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v
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0
5
J
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6
M
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7
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M
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N
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1
J
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2
M
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-
1
3
N
o
v
-
1
3
Mean P/B = 1.6x
P/B (x)
Target P/B = 1.8x

0.0
0.9
1.8
2.7
3.6
4.5
5.4
N
o
v
-
0
5
N
o
v
-
0
6
N
o
v
-
0
7
N
o
v
-
0
8
N
o
v
-
0
9
N
o
v
-
1
0
N
o
v
-
1
1
N
o
v
-
1
2
N
o
v
-
1
3
Mean P/B = 2.1x
Target P/B = 2.8x
(x)

Source: Bloomberg, Company data, Credit Suisse estimates Source: Bloomberg, Company data, Credit Suisse estimates
Upgrade to OVERWEIGHT, UBL top pick
We upgrade the sector to OVERWEIGHT (MARKET-WEIGHT) with UBL our top pick
(34% upside to TP of PRs170) The banks remain attractive on both historical valuations as
well as P/B-ROE basis compared with peers. Given improvements in macros on both the
local and international front (particularly its main international market, the UAE), the bank
offers the most leverage to growth, in our view. We have already seen an uptick in
business activity at its international operations in 2013 with local operations expected to
follow suit from next year. We also like MCB (25% upside) due to its premium franchise
position, high margins, superior asset quality and reasonably strong earnings momentum.
Figure 43: UBL appears most attractive on P/B ROE Figure 44: and on P/B ROA basis as well
NBP
UBL
ABL
HBL
MCB
0.4
0.7
1.0
1.3
1.6
1.9
2.2
2.5
6.0 9.0 12.0 15.0 18.0 21.0 24.0
ROE (%)
P/B (x)

NBP
UBL
ABL
HBL
MCB
0.4
0.7
1.0
1.3
1.6
1.9
2.2
2.5
0.6 1.0 1.4 1.8 2.2 2.6 3.0
P/B (x)
ROA (%)

Source: Bloomberg, Credit Suisse estimates (2014E) Source: Bloomberg, Credit Suisse estimates (2014E)

We prefer UBL and MCB
27 November 2013
Summary of estimate revisions
Figure 45: UBL estimate revisions (2013-15)

PRs mn 2013 2014 2015 2013 2014 2015 2013 2014 2015
Net interest income 36,529 42,607 50,117 36,452 39,991 45,292 0.2 6.5 10.7
Fee income 9,596 10,984 12,678 9,159 10,295 11,823 4.8 6.7 7.2
Pre-prov. op. profit 25,297 30,647 37,468 27,030 29,571 33,788 (6.4) 3.6 10.9
Provisions 2,016 1,936 1,897 2,984 3,198 4,140 (32.4) (39.5) (54.2)
Credit cost (bp) 48 42 36 162 116 104 (1.1) (0.7) (0.7)
Net profit 17,457 20,369 24,705 16,738 18,116 20,485 4.3 12.4 20.6
EPS (PRs) 14.3 16.6 20.2 13.7 14.8 16.7 4.3 12.4 20.6
Key drivers (%)
Net interest margin 4.6 4.8 5.0 4.6 4.6 4.6 (0.0) 0.3 0.4
Deposit growth 14.5 15.0 16.0 14.0 13.5 14.0 0.5 1.5 2.0
Loan growth 7.0 12.0 16.0 10.0 11.0 15.0 (3.0) 1.0 1.0
Investment growth 14.0 10.8 13.8 9.3 9.2 10.8 4.7 1.7 3.0
Gross NPL ratio 13.0 11.7 10.4 13.4 12.4 11.5 (0.3) (0.7) (1.1)
Tier 1 CAR 11.3 11.5 11.5 10.4 10.3 10.1 0.9 1.2 1.4
ROE 18.2 19.3 20.8 17.5 17.4 17.6 0.7 1.9 3.2
ROA 1.8 1.9 2.0 1.8 1.8 1.8 0.1 0.1 0.2
Figure 46: MCB estimate revisions (2013-15)

PRs mn
2013 2014 2015 2013 2014 2015 2013 2014 2015
Net interest income 38,139 44,376 50,839 37,631 40,302 45,665 1.4 10.1 11.3
Fee income 7,050 8,156 9,615 7,227 8,266 9,435 (2.4) (1.3) 1.9
Pre-prov. op. profit 30,682 36,893 43,473 28,783 30,979 35,444 6.6 19.1 22.7
Provisions (1,707) (514) 339 854 771 1,335 NM NM (74.6)
Credit cost (bp) (64) (18) 10 78 50 34 (1.4) (0.7) (0.2)
Net profit 21,774 25,462 29,531 20,333 22,733 25,892 7.1 12.0 14.1
EPS (PRs) 21.5 25.2 29.2 20.1 22.5 25.6 7.1 12.0 14.1
Key drivers (%)
Net interest margin 5.8 6.2 6.3 5.6 5.5 5.5 0.2 0.8 0.8
Deposit growth 11.5 13.5 14.5 12.5 13.0 14.0 (1.0) 0.5 0.5
Loan growth 4.0 11.0 16.0 6.0 10.0 14.0 (2.0) 1.0 2.0
Investment growth 1.3 13.7 13.1 5.8 12.1 13.6 (4.5) 1.6 (0.5)
Gross NPL ratio 9.1 8.1 7.0 9.1 8.3 7.8 0.0 (0.2) (0.7)
Tier 1 CAR 22.0 21.6 21.2 15.7 15.3 14.8 6.4 6.3 6.4
ROE 19.8 21.2 21.8 22.8 21.3 20.6 (3.0) (0.1) 1.3
ROA 2.8 3.0 3.1 3.3 3.2 3.2 (0.6) (0.2) (0.1)

27 November 2013
Figure 47: NBP estimate revisions (2013-15)

PRs mn
2013 2014 2015 2013 2014 2015 2013 2014 2015
Net interest income 37,239 42,345 46,410 41,871 48,045 55,114 (11.1) (11.9) (15.8)
Fee income 11,953 13,087 14,798 12,043 13,533 15,624 (0.7) (3.3) (5.3)
Pre-prov. op. profit 18,921 21,676 24,248 22,521 27,581 33,147 (16.0) (21.4) (26.8)
Provisions 15,543 7,271 5,359 4,595 4,498 4,552 238.3 61.7 17.7
Credit cost (bp) 204 87 57 60 53 47 1.4 0.3 0.1
Net profit 8,120 14,850 16,956 15,505 18,242 22,241 (47.6) (18.6) (23.8)
EPS (PRs) 3.8 7.0 8.0 7.3 8.6 10.5 (47.6) (18.6) (23.8)
Key drivers (%)
Net interest margin 3.4 3.6 3.6 3.8 3.9 4.0 (0.4) (0.4) (0.4)
Deposit growth 11.5 10.0 11.0 13.0 13.0 13.0 (1.5) (3.0) (2.0)
Loan growth 9.0 10.5 14.0 10.0 11.0 13.0 (1.0) (0.5) 1.0
Investment growth 11.7 1.3 3.2 15.1 15.3 16.1 (3.3) (14.0) (12.9)
Gross NPL ratio 12.3 12.2 11.2 11.9 11.3 10.5 0.5 0.9 0.8
Tier 1 CAR 11.3 10.9 10.3 11.8 10.8 10.1 (0.5) 0.1 0.2
ROE 5.6 10.4 11.1 10.1 11.0 11.5 (4.5) (0.6) (0.4)
ROA 0.6 1.0 1.0 1.1 1.2 1.3 (0.5) (0.2) (0.2)
27 November 2013
Asia banks: Valuation snapshot
Figure 48: Asia banksvaluation snapshot

Mkt cap Daily vol. Price (loc. curr.) Price performance (%)
25 Nov 2013
(US$ bn) (US$ mn) Beta Rating Current Target Up. (%) 3M 2012 2011
1398 HK ICBC 226.8 166.4 1.30 O 5.52 7.00 27% 7.4 19.3 -20.4
939 HK CCB 200.5 192.2 1.09 O 6.24 7.80 25% 7.8 14.8 -22.2
1288 HK ABC 141.1 130.7 1.10 O 3.94 4.80 22% 17.3 14.7 -14.4
3988 HK BOC 130.3 64.9 1.29 N 3.72 4.40 18% 12.4 21.0 -30.2
3328 HK BCOM 52.5 25.3 1.19 U 5.74 5.40 -6% 9.8 7.6 -23.7
3968 HK CMB 46.4 36.5 1.43 O 16.40 20.70 26% 19.7 8.9 -20.0
998 HK CiticBank 29.5 31.0 1.27 O 4.47 5.90 32% 17.6 5.3 -10.2
1988 HK Minsheng 38.4 44.0 1.12 O 9.19 12.80 39% 11.9 33.1 1.2
3618 HK ChongQing 4.9 9.1 1.55 O 4.06 5.70 40% 16.3 5.5 -23.1
ICICIBC IB ICBK 19.9 5.5 1.28 N 1,073 1,036 -3% 25.9 66.1 -40.2
SBIN IB SBI 19.8 16.3 1.15 N 1,805 1,417 -21% 15.7 47.2 -42.4
HDFC IB HDFC 20.5 2.1 1.04 O 819 1,045 28% 10.6 27.5 -10.8
HDFCB IB HDBK 25.3 1.8 0.96 O 659 770 17% 8.5 59.0 -9.0
KMB IB Kotak 9.2 0.7 1.03 U 746 618 -17% 16.0 50.3 -4.5
AXSB IB Axis 8.4 4.3 1.22 O 1,116 1,450 30% 13.7 68.1 -40.2
BOI IB BOI 2.1 0.8 1.05 N 217 175 -19% 47.2 28.7 -40.8
PNB IB PNB 3.0 1.2 1.05 N 533 555 4% 10.4 11.1 -35.8
IDFC IB IDFC 2.5 1.8 1.38 O 104 144 39% 0.0 86.6 -49.6
BOB IB BOB 4.3 1.1 0.91 O 633 707 12% 34.5 31.2 -26.3
UNBK IB Union 1.2 1.1 0.97 U 122 120 -1% 7.1 61.7 -51.2
YES IB Yes Bank 2.0 1.9 1.28 U 351 345 -2% 35.3 94.6 -23.7
JKBK IB J&K Bank 0.9 0.4 0.83 O 1,184 1,700 44% 5.4 91.8 -12.8
105560 KP KB Fin 14.5 36.9 1.20 O 39,750 48,500 22% 14.9 4.4 -39.5
055550 KP Shinhan 19.8 33.3 1.05 O 44,200 54,000 22% 12.0 -2.3 -24.9
053000 KP Woori 9.7 18.1 1.27 R 12,800 R N/A 16.6 25.1 -39.2
086790 KP Hana 10.9 34.3 1.38 O 39,850 47,000 18% 16.9 -2.4 -17.9
024110 KP IBK 6.2 9.1 1.08 O 12,000 14,000 17% 7.2 -5.2 -33.3
138930 KP BS Financial 2.9 5.9 0.93 R 16,000 R N/A 9.3
139130 KP DGB Financial 2.1 2.7 n.a. O 16,950 18,000 6% 7.0
2881 TT Fubon 14.5 18.4 1.08 N 41.80 43.00 3% 3.7 15.0 -15.9
2886 TT Mega 10.3 13.6 1.07 N 24.55 24.17 -2% 6.9 13.6 -8.2
2891 TT Chinatrust 9.4 21.7 1.22 O 19.00 22.50 18% 2.4 -0.1 -5.3
2892 TT First 5.2 6.0 1.03 U 17.80 15.49 -13% 4.7 5.7 -29.1
2880 TT HuaNan 5.2 3.2 0.94 U 17.00 14.48 -15% 7.1 7.9 -27.6
2890 TT Sinopac 4.0 7.2 1.19 N 14.55 15.00 3% 12.7 39.3 -28.5
2801 TT ChangHwa 4.7 4.0 1.10 N 18.05 16.00 -11% 12.0 3.7 -30.8
2887 TT Taishin 3.7 7.2 1.19 U 14.45 12.00 -17% 15.0 19.9 -34.9
2884 TT ESun 3.7 5.8 1.17 N 19.90 18.64 -6% 10.9 30.7 -29.2
2847 TT TaChong 0.9 1.5 1.12 O 10.55 13.00 23% 14.2 45.9 -43.3
BBRI IJ Rakyat 16.1 23.0 1.27 O 7,700 10,250 33% 15.8 3.0 28.6
BBCA IJ BCA 21.2 9.4 0.95 N 10,150 10,600 4% 8.6 13.8 25.0
BMRI IJ Mandiri 15.3 18.6 1.34 O 7,800 10,500 35% 5.4 20.0 5.6
BDMN IJ Danamon 3.1 1.8 1.02 U 3,875 3,000 -23% -6.6 37.8 -25.9
BBNI IJ Negara 6.8 7.5 1.17 N 4,325 4,700 9% 17.7 -2.6 -1.9
BBTN IJ BBTN 0.9 2.8 1.33 U 1,000 880 -12% -2.9 25.0 -26.2
BJBR IJ Jabar Banten 0.7 1.0 1.36 N 830 975 17% -3.5 16.5 -37.2
BTPN IJ BTPN 2.1 0.1 0.71 N 4,275 4,350 2% 9.6 54.4 28.8
Note: Ratings O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM, R = RESTRICTED (Priced as of 25 November 2013)
27 November 2013

P/PPOP (x) P/E (x) EPS growth (%) P/B (x) ROE (%) ROA (%) Yield (%)
25 Nov 2013
2013E 2014E 2013E 2014E 2013E 2014E 2013E 2014E 2013E 2014E 2014E 2014E
1398 HK ICBC 3.6 3.3 5.7 5.5 10.5 5.5 1.2 1.0 21.7 19.9 1.40 6.4
939 HK CCB 3.8 3.6 5.7 5.6 11.9 1.0 1.1 1.0 21.3 18.8 1.36 6.2
1288 HK ABC 3.2 2.9 5.8 5.1 18.8 13.7 1.2 1.0 21.3 20.9 1.29 6.8
3988 HK BOC 3.4 3.1 5.2 4.9 12.1 6.4 0.9 0.8 17.8 16.8 1.19 7.1
3328 HK BCOM 3.2 3.1 5.3 5.5 8.4 -3.4 0.8 0.7 16.0 14.1 1.01 5.5
3968 HK CMB 3.6 3.1 5.8 5.5 6.7 4.3 1.1 1.0 20.9 19.0 1.45 4.5
998 HK CiticBank 2.7 2.5 4.1 4.1 28.4 1.8 0.7 0.6 18.5 16.5 1.12 6.2
1988 HK Minsheng 3.4 2.8 4.8 4.1 12.9 18.7 1.1 0.9 23.8 23.9 1.45 4.4
3618 HK ChongQing 3.2 2.9 4.8 4.4 16.2 8.1 0.8 0.7 18.2 17.3 1.22 6.8
ICICIBC IB ICBK 8.0 6.8 13.6 11.8 9.7 14.9 1.7 1.5 13.1 13.7 1.56 2.6
SBIN IB SBI 4.1 3.3 10.5 8.3 -16.4 25.6 1.2 1.0 11.5 13.2 0.76 2.8
HDFC IB HDFC 16.5 13.8 22.6 19.1 13.0 18.5 4.6 4.1 21.3 22.8 2.63 2.4
HDFCB IB HDBK 11.1 9.0 18.6 15.1 25.3 23.2 3.6 3.1 21.3 22.1 1.96 1.3
KMB IB Kotak 14.3 11.8 22.7 19.0 11.9 19.7 3.2 2.7 14.9 15.4 2.03 0.2
AXSB IB Axis 4.7 4.2 8.8 7.8 9.1 13.5 1.4 1.2 16.9 16.7 1.62 2.2
BOI IB BOI 1.6 1.4 4.3 3.6 9.1 19.4 0.5 0.5 12.6 13.6 0.66 6.0
PNB IB PNB 1.7 1.4 4.4 3.6 -17.5 21.1 0.5 0.5 13.2 14.4 0.89 6.9
IDFC IB IDFC 5.0 4.2 7.8 6.6 8.5 18.1 1.0 0.9 13.9 14.8 2.92 4.3
BOB IB BOB 3.0 2.5 6.3 5.3 -5.6 17.6 0.8 0.7 13.2 14.0 0.78 4.6
UNBK IB Union 1.4 1.2 3.2 2.8 0.7 14.8 0.4 0.4 13.7 14.1 0.68 7.7
YES IB Yes Bank 5.1 4.1 9.6 7.7 0.5 24.8 1.6 1.4 20.1 19.1 1.52 2.3
JKBK IB J&K Bank 2.8 2.5 4.8 4.6 13.9 6.2 1.0 0.8 22.3 20.1 1.43 5.1
105560 KP KB Fin 4.2 3.5 10.7 7.3 4.2 46.5 0.6 0.6 6.3 8.9 0.68 2.3
055550 KP Shinhan 5.3 4.6 10.8 8.7 -4.0 24.3 0.8 0.7 8.5 9.9 0.76 1.6
053000 KP Woori 3.0 2.6 12.8 9.0 -37.4 42.9 0.5 0.5 4.8 6.5 0.33 1.6
086790 KP Hana 4.4 3.6 9.1 7.3 -16.1 24.6 0.6 0.5 7.8 8.5 0.51 2.0
024110 KP IBK 2.7 2.5 8.4 6.6 -28.9 28.2 0.5 0.4 7.5 9.0 0.50 2.1
138930 KP BS Financial 4.8 4.3 8.5 7.6 9.2 12.1 0.9 0.8 11.1 11.3 0.82 2.5
139130 KP DGB Financial 4.6 4.0 9.1 7.4 -4.0 23.2 0.8 0.7 10.5 12.3 0.78 2.4
2881 TT Fubon 10.5 10.1 12.6 12.1 9.3 3.8 1.2 1.1 10.3 9.6 0.73 2.6
2886 TT Mega 10.6 9.7 12.6 12.2 5.0 3.7 1.3 1.2 10.3 10.0 0.81 3.7
2891 TT Chinatrust 10.2 7.6 15.0 9.5 -28.0 57.9 1.4 1.3 9.6 14.0 1.36 4.4
2892 TT First 9.9 8.5 14.3 12.6 2.9 13.3 1.1 1.0 7.8 8.4 0.56 2.2
2880 TT HuaNan 10.8 9.8 16.2 14.7 6.9 10.5 1.1 1.0 6.8 7.3 0.47 1.7
2890 TT Sinopac 9.5 9.0 12.1 12.0 1.2 1.0 1.1 1.1 9.7 9.3 0.72 3.3
2801 TT ChangHwa 13.6 11.3 15.1 14.7 5.0 3.2 1.2 1.1 8.1 7.9 0.55 2.0
2887 TT Taishin 4.7 4.8 8.1 10.1 36.6 -19.6 1.1 1.0 14.6 10.6 0.66 2.5
2884 TT ESun 9.3 8.4 12.9 12.2 17.3 6.0 1.3 1.2 10.8 10.6 0.68 1.6
2847 TT TaChong 6.5 6.4 8.8 8.1 54.2 8.0 0.8 0.8 9.8 10.1 0.69 4.0
BBRI IJ Rakyat 7.5 6.5 9.8 9.9 3.5 -0.9 2.4 2.0 26.7 21.8 2.77 2.0
BBCA IJ BCA 13.5 12.4 18.4 17.3 15.8 6.1 4.1 3.5 24.1 22.0 2.78 1.9
BMRI IJ Mandiri 6.8 6.3 10.7 10.0 9.4 7.2 2.1 1.9 21.2 19.9 2.31 2.0
BDMN IJ Danamon 4.0 3.7 9.2 9.1 0.9 0.9 1.2 1.1 13.6 12.6 2.16 3.9
BBNI IJ Negara 6.7 5.5 9.3 8.8 23.0 6.3 1.6 1.4 18.7 17.3 2.28 3.4
BBTN IJ BBTN 4.2 3.6 7.5 6.0 3.0 26.1 1.1 0.9 15.4 16.5 1.22 0.0
BJBR IJ Jabar Banten 3.3 2.8 6.3 5.4 7.7 15.4 1.1 0.9 19.5 17.9 1.65 12.7
BTPN IJ BTPN 7.0 5.9 10.6 9.7 15.3 9.3 2.4 1.9 25.7 22.1 3.14 0.0
Note: Priced as of 25 November 2013.
27 November 2013

Mkt cap Daily vol. Price (loc. curr.) Price performance (%)
25 Nov 2013
(US$ bn) (US$ mn) Beta Rating Current Target Up. (%) 3M 2012 2011
SCB TB SCB 17.0 30.4 1.17 O 160 185 16% 13.1 55.8 12.6
BBL/F TB BBL 11.4 11.7 1.12 N 191 228 20% 1.9 27.4 7.5
KBANK/F TB KBANK 13.0 15.8 1.13 O 174 228 31% 6.4 55.4 -4.6
BAY TB BAY 7.3 16.0 1.20 N 38.5 39.0 1% 2.0 47.7 -14.6
KTB TB KTB 8.2 25.3 1.33 O 18.8 24.5 30% 6.8 39.8 -13.9
TMB TB TMB 3.7 12.0 1.10 N 2.68 2.60 -3% 3.1 17.7 -33.1
TISCO TB TISCO 1.0 3.8 0.98 N 39.8 46.0 16% 11.2 36.8 -6.7
TCAP TB TCAP 1.3 13.0 1.04 N 32.5 39.0 20% 3.2 41.1 -25.7
MAY MK MAY 26.5 24.6 0.90 N 9.61 10.30 7% -3.4 7.2 0.9
PBKF MK Public 14.1 6.5 0.71 N 18.4 17.5 -5% 8.1 23.5 1.5
CIMB MK CIMB 18.0 20.4 1.22 N 7.51 8.20 9% -0.4 2.6 -12.5
HLBK MK HLB 8.3 5.7 1.21 N 14.2 13.8 -3% 2.3 35.6 23.4
HLFG MK HLFG 5.0 1.2 1.26 O 15.3 17.1 12% 7.5 13.2 31.2
AFG MK Alliance 6.0 2.3 1.09 O 7.57 8.80 16% 4.0 2.8 -14.2
RHBC MK RHB Capital 2.3 4.2 1.17 O 4.85 5.63 16% -1.8 11.4 29.9
BPI PM BPI 7.5 3.6 1.04 O 92.0 112.0 22% 2.2 72.1 -6.4
BDO PM BDO 6.0 9.4 1.13 N 73.6 85.0 15% -3.3 36.8 0.9
MBT PM Metro bank 4.6 9.1 1.17 U 74.0 82.0 11% -7.4 50.1 -5.6
SECB PM Security 33.4 2.8 1.20 N 17.1 19.0 11% 5.5 28.8 -19.6
DBS SP DBS 26.5 43.0 1.02 N 21.1 22.0 4% 1.1 29.7 -16.1
UOB SP UOB 28.9 36.9 1.02 U 10.49 10.20 -3% 4.6 24.3 -20.7
OCBC SP OCBC 208.6 25.0 0.97 U 86.5 99.2 15% 3.3 37.8 -26.0
5 HK HSBC 57.2 143.1 0.98 O 183 172 -6% 2.3 15.4 -19.8
2888 HK STAN 31.0 12.8 0.97 U 125.9 135 7% 4.0 28.8 -27.9
11 HK HSB 35.8 21.5 0.74 N 26.3 30.8 17% 7.4 31.0 -30.4
2388 HK BOC-HK 10.1 38.5 0.98 O 34.2 26.9 -21% 12.2 0.9 -9.7
23 HK BEA 4.2 7.8 0.92 U 106.6 72.0 -32% 37.9 27.1 -40.8
302 HK WHB 1.7 1.8 0.94 N 44.2 39.9 -10% 19.5 50.3 -54.3
440 HK DSF 2.2 2.0 1.20 N 13.70 12.20 -11% 23.2 27.1 -49.8
2356 HK DSBG 1.5 1.3 1.10 N 128.89 170.00 32% 2.3 59.7 -23.2
UBL PK UBL 2.7 0.7 1.23 O 284.13 350 23% 0.7 71.4 -35.2
MCB PK MCB 1.1 1.2 1.40 O 55.87 53.0 -5% 9.0 32.3 -33.2
NBP PK NBP 113.7 0.8 1.08 U 76.9 76.0 -1% 5.9 26.3 -3.1
CBA AU CBA 93.5 216.0 0.95 U 32.8 33.5 2% 3.6 30.2 -10.0
WBC AU WBC 74.2 182.8 1.14 U 34.4 36.5 6% 5.1 7.0 -1.4
NAB AU NAB 80.5 200.3 1.15 N 32.0 34.5 8% 7.3 22.0 -12.1
ANZ AU ANZ 17.0 164.8 1.09 N 160 185 16% 13.1 55.8 12.6
Note: Ratings O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM (Priced as of 25 November 2013)

27 November 2013

P/PPOP (x) P/E (x) EPS growth (%) P/B (x) ROE (%) ROA (%) Yield (%)
25 Nov 2013 2013E 2014E 2013E 2014E 2013E 2014E 2013E 2014E 2013E 2014E 2014E 2014E
SCB TB SCB 7.3 6.4 10.8 9.6 25.3 12.9 2.3 2.0 22.0 22.2 2.19 5.0
BBL/F TB BBL 7.7 6.9 9.8 9.6 12.3 2.6 1.3 1.1 13.2 12.5 1.45 4.3
KBANK/F TB KBANK 6.2 5.5 10.1 8.9 17.1 13.2 2.0 1.7 20.8 20.6 1.95 4.3
BAY TB BAY 7.2 6.4 15.2 12.3 5.1 23.4 1.9 1.8 13.1 14.9 1.55 3.2
KTB TB KTB 5.3 4.7 8.3 6.9 16.2 21.6 1.3 1.2 16.6 18.2 1.47 6.1
TMB TB TMB 8.4 7.5 20.0 13.3 262.7 51.2 2.0 1.9 10.5 14.7 1.16 3.0
TISCO TB TISCO 3.6 3.3 6.5 6.2 19.3 4.8 1.4 1.2 22.7 21.0 1.44 5.8
TCAP TB TCAP 2.4 2.2 4.3 6.7 74.9 -34.9 0.8 0.8 20.8 12.1 0.53 4.9
MAY MK MAY 9.0 8.0 13.3 12.3 6.2 8.5 1.9 1.8 14.5 15.1 1.29 6.1
PBKF MK Public 7.5 6.5 15.2 13.0 10.5 16.5 3.2 2.8 22.4 23.0 1.51 3.5
CIMB MK CIMB 9.0 7.4 11.9 11.3 7.8 6.1 1.8 1.6 15.6 14.9 1.27 3.5
HLBK MK HLB 11.7 10.3 13.5 12.0 6.2 12.9 1.9 1.7 14.5 15.0 1.21 3.3
HLFG MK HLFG 5.8 5.1 10.7 9.3 0.3 15.5 1.4 1.3 14.1 14.6 0.85 2.7
AFG MK Alliance 6.6 5.7 10.6 9.0 6.7 18.1 1.2 1.1 11.4 12.4 1.02 3.3
RHBC MK RHB Capital 8.6 7.2 11.8 10.6 18.2 11.7 1.7 1.6 15.1 15.5 1.32 4.3
BPI PM BPI 12.2 11.7 16.8 17.1 19.7 -1.8 3.1 2.8 19.3 17.4 1.61 2.3
BDO PM BDO 8.9 9.4 11.9 13.7 35.6 -13.0 1.6 1.5 14.1 11.3 1.16 1.8
MBT PM Metro bank 5.9 8.0 9.3 14.2 45.5 -34.0 1.5 1.4 17.7 10.4 1.03 1.4
SECB PM Security 8.6 8.0 11.7 10.7 6.6 9.2 1.2 1.2 11.1 11.3 0.98 3.5
DBS SP DBS 9.1 8.5 11.8 11.4 4.3 3.5 1.3 1.2 11.9 11.6 1.04 3.6
UOB SP UOB 9.7 9.0 13.7 13.1 -1.9 4.1 1.3 1.3 11.3 11.2 0.83 3.1
OCBC SP OCBC 7.1 6.7 11.6 10.1 16.1 14.2 1.1 1.1 10.1 11.1 0.75 6.3
5 HK HSBC 6.2 6.0 11.3 10.7 -1.9 5.3 1.2 1.2 11.2 11.4 0.82 4.0
2888 HK STAN 12.6 11.5 14.9 13.7 -11.7 9.0 2.3 2.2 16.5 16.5 1.48 4.4
11 HK HSB 10.0 9.2 12.7 11.7 15.8 8.4 1.7 1.7 14.1 14.5 1.18 5.3
2388 HK BOC-HK 10.4 9.7 13.7 12.7 7.4 8.3 1.2 1.1 9.3 9.2 0.80 3.3
23 HK BEA 15.2 13.4 19.2 16.5 10.2 16.0 1.6 1.5 8.4 9.2 0.92 2.6
302 HK WHB 7.1 6.6 9.5 9.0 25.3 5.0 0.8 0.8 8.2 8.9 0.77 3.5
440 HK DSF 9.6 9.4 9.4 9.5 37.0 -1.2 1.0 0.9 10.4 10.3 1.01 3.2
2356 HK DSBG 6.2 5.1 9.0 7.7 -3.1 16.7 1.6 1.4 18.2 19.3 1.93 7.0
UBL PK UBL 9.3 7.7 13.2 11.3 3.3 16.7 2.5 2.3 19.7 21.1 3.00 4.9
MCB PK NBP 6.3 5.5 14.6 8.0 -49.7 82.6 0.9 0.8 5.6 10.4 1.00 8.9
NBP PK MCB 9.9 9.7 15.5 15.3 4.8 1.4 2.7 2.6 18.3 17.7 1.03 5.0
CBA AU CBA 9.2 8.8 14.7 14.4 6.6 2.2 2.2 2.1 16.0 15.7 1.00 5.6
WBC AU WBC 7.8 7.4 13.7 12.6 5.0 8.6 1.9 1.8 15.0 15.1 0.77 6.0
NAB AU NAB 8.7 8.1 13.9 13.1 8.5 6.6 2.0 1.9 15.3 15.4 0.94 5.4
ANZ AU ANZ 7.3 6.4 10.8 9.6 25.3 12.9 2.3 2.0 22.0 22.2 2.19 5.0
Note: Priced as of 25 November 2013)

27 November 2013

Asia Pacific / Pakistan
Regional Banks

United Bank Limited
(UBL.KA / UBL PA)

Rising growth dynamics merit richer multiples
Raising estimates and target price. In view of rising interest rates, the
expected uptick in private sector credit from both local and international
operations and the continued borrowing appetite of the government, we
increase our NIMs estimate by 27-40 bp, deposits and loan growth by 1-2%
over 2014-15. Management's efforts to clean up the balance sheet appears
to be bearing fruit, in our view, reflected by NPL reversals of PRs4.9 bn in
9M13 and low LDRs (down to 49% from a peak of 77%). As a result, we
raise our earnings estimates by 4-21% over 2013-15E.
Earnings to rebound in 2014. UBL's earnings fell 8% in 9M13 primarily on
account of falling margins (down 104 bp) as the central bank embarked on
monetary easing, lowering rates by 300 bp between 2H12 to 1H13. Given a
rise in rates, renewed focus on balance sheet growth, continued government
borrowing appetite and likely uptick in local and international credit demand,
we expect earnings to grow at a 2013-16E CAGR of 18%. This should help
ROEs to expand to 21% by 2015 (from 18% in 2013E).
International business back at the forefront. UBLs significant
international footprint made a strong recovery in 2013 (international assets
up 12% YTD versus 5% growth overall). Recovery in trade, tourism and real
estate in the key markets of UAE and Qatar led the overall rebound. The
improving business outlook can also be gauged by significant recoveries on
international NPLs (down PRs2 bn in 2013). Going forward, we expect
continued positive momentum in key GCC markets to drive growth in both
the funded and non-funded business of the bank.
Improving business outlook justifies re-rating. UBL currently trades at an
undemanding 2014E P/B of 1.4x (14% historical discount) with an ROE of
19%. We believe the bank's stronger balance sheet position, profitability
upswing along with recovery in the international business (a key
differentiation point) justifies a re-rating of valuation multiples. Hence, we
upgrade UBL to OUTPERFORM (from Neutral) with a revised TP of PRs170
(PRs85 earlier). Any turmoil in the Middle East remains a key risk.
Share price performance
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Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13
Price (LHS) Rebased Rel (RHS)

The price relative chart measures performance against the
KARACHI SE 100 INDEX which closed at 23798.7 on 26/11/13
On 26/11/13 the spot exchange rate was PRs108./US$1

Performance over 1M 3M 12M
Absolute (%) 3.5 -3.4 62.1
Relative (%) -3.0 -10.6 16.6
Financial and valuation metrics
Year 12/12A 12/13E 12/14E 12/15E
Pre-prov op profit (PRs mn) 31,061.1 25,297.0 30,646.6 37,468.2
Recurring profit (PRs mn) 27,028.9 26,467.9 30,549.9 37,148.8
Pre-tax profit (PRs mn) 27,028.9 26,467.9 30,549.9 37,148.8
Net profit (PRs mn) 18,006.7 17,457.3 20,369.4 24,705.4
EPS (PRs) 14.7 14.3 16.6 20.2
Change from previous EPS (%) n.a. 4.3 12.4 20.6
IBES consensus EPS (PRs) n.a. 13.85 15.38 18.28
EPS growth (%) 16.2 -3.1 16.7 21.3
P/E (x) 8.6 8.9 7.6 6.3
Dividend yield (%) 6.7 6.8 7.2 7.6
BVPS (PRs) 75.3 81.6 91.0 103.2
P/B (x) 1.7 1.6 1.4 1.2
ROE(%) 21.0 18.2 19.3 20.8
ROA (%) 2.2 1.9 1.9 2.0
Source: Company data, Thomson Reuters, IFIS, Credit Suisse estimates.
Rating (from Neutral) OUTPERFORM*
Price (26 Nov 13, PRs) 126.4
Target price (PRs) (from 85) 170
Chg to TP (%) 34.5
Market cap. (PRs bn) 154.74 (US$1.43 bn)
Enterprise value (PRs bn) 47.81
Number of shares (mn) 1,224.18
Free float (%) 100.0
52-week price range 15478

*Stock ratings are relative to the coverage universe in each
analyst's or each team's respective sector.
Target price is for 12 months.

Research Analysts
Farhan Rizvi, CFA
65 6212 3036

27 November 2013
United Bank Limited UBL.KA / UBL PA
Price (26 Nov 13): PRs126.40, Rating: NEUTRAL, Target Price: PRs170.00, Analyst: Farhan Rizvi
Target price scenario
Scenario TP %Up/Dwn Assumptions
Upside 364.00 187.97 Historical peak P/B 4.0x
Central case 170.00 34.49 Justified P/B of 2.0x
Downside 55.00 (56.49) Trough 2009 P/B of 0.6x

Key earnings drivers 12/12A 12/13E 12/14E 12/15E
Net interest margin (%) 5.51 4.63 4.84 5.00
Fee income (PKR mn) 8,163 9,596 10,984 12,678
Provision for NPLs (PKR mn) 4,061 2,016 1,936 1,897
Valuation 12/12A 12/13E 12/14E 12/15E
EPS growth (%) 16.2 (3.1) 16.7 21.3
P/E (x) 8.59 8.86 7.60 6.26
P/B (x) 1.68 1.55 1.39 1.22
P/TB (x) 1.74 1.60 1.43 1.26
Dividend yield (%) 6.72 6.77 7.17 7.55
Income statement (PRs mn) 12/12A 12/13E 12/14E 12/15E
Interest income 73,507 71,995 85,802 99,106
Interest expense 34,948 35,467 43,195 48,989
Net interest income 38,560 36,529 42,607 50,117
Fee and commission income 8,163 9,596 10,984 12,678
Trading income 1,863 2,339 2,598 3,010
Insurance income (& premiums)
Other income 6,639 3,118 3,811 4,151
Total non-interest income 16,541 14,917 17,241 19,663
Total income 55,100 51,445 59,848 69,780
Personal expense 9,846 10,797 11,972 13,104
Other expenses 14,318 15,487 17,380 19,383
Total expenses 24,163 26,284 29,353 32,487
Pre-provision profit 31,061 25,297 30,647 37,468
Loan loss provisions 4,061 2,016 1,936 1,897
Operating profit 27,000 23,281 28,711 35,572
Associates/JV
Other non-operating inc./(exp.) 28 3,187 1,839 1,577
Pre-tax profit 27,029 26,468 30,550 37,149
Taxes 9,022 9,011 10,181 12,443
Net profit before minorities 18,007 17,457 20,369 24,705
Minority interests
Preferred dividends
Exceptionals/extraordinaries
Reported net profit 18,007 17,457 20,369 24,705
Analyst adjustments
Net profit (Credit Suisse) 18,007 17,457 20,369 24,705
Balance sheet (PRs mn) 12/12A 12/13E 12/14E 12/15E
Assets
Gross customer loans 409,090 437,727 490,254 568,695
Risk provisions 44,727 46,035 47,329 48,602
Net customer loans 364,364 391,691 442,925 520,093
Interbank Loans 37,188 44,106 60,865 68,984
Investment & Securities 334,019 380,667 421,929 480,073
Cash & cash equivalents 94,081 106,921 122,960 142,633
Fixed Assets 21,318 21,984 22,704 23,482
Intangibles 3,113 3,176 3,239 3,304
Other assets 41,911 43,815 48,292 53,110
Total assets 895,994 992,361 1,122,913 1,291,679
Liabilities
Interbank deposits 67,214 57,936 54,069 56,353
Customer deposits 699,936 801,426 921,640 1,069,103
Total deposits 767,150 859,362 975,709 1,125,455
Other liabilities 36,606 33,059 35,860 39,875
Total liabilities 803,756 892,421 1,011,570 1,165,330
Shareholders' equity 92,238 99,940 111,343 126,349
Minority interests
Preferred stock
Total liabilities & equity 895,994 992,361 1,122,913 1,291,679
Per share data 12/12A 12/13E 12/14E 12/15E
Shares (wtd avg.) (mn) 1,224 1,224 1,224 1,224
EPS (Credit Suisse)
(PRs)
14.71 14.26 16.64 20.18
BVPS (PRs) 75 82 91 103
Tangible BVPS (PRs) 73 79 88 101
DPS (PRs) 8.5 8.6 9.1 9.5
Key ratios 12/12A 12/13E 12/14E 12/15E
Profitability and margins
(%)

ROE stated 21.0 18.2 19.3 20.8
ROE - CS adj. 21.0 18.2 19.3 20.8
ROA - CS adj. 2.15 1.85 1.93 2.05
Gearing (x) 9.8 9.8 10.0 10.2
Asset quality (%)
NPL/ gross loans 14.0 13.0 11.7 10.4
B/S loan loss coverage
Loan/ deposit ratio 52.1 48.9 48.1 48.6
Capital ratios (%)
Capital adequacy ratio 15.0 15.2 14.6 14.1
Tier 1 ratio 10.7 11.3 11.5 11.5
Equity Tier 1 ratio 10.7 11.3 11.5 11.5
Growth(%)
Revenue 6.9 (6.6) 16.3 16.6
Operating expense 18.4 8.8 11.7 10.7
Pre-provision profit (0.7) (18.6) 21.1 22.3
Net profit 16.2 (3.1) 16.7 21.3
Deposit 14.2 14.5 15.0 16.0

0
2
4
6
8
10
12
2008 2009 2010 2011 2012 2013
12MF P/E multiple

0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
2008 2009 2010 2011 2012 2013
12MF P/B multiple

Source: IBES
27 November 2013

Regional Banks

MCB Bank Limited
(MCB.KA / MCB PA)

Dominant franchise position to continue
Raising NIMs, deposit and asset growth estimates. Given expectation of
further tightening, better private sector credit appetite and continued fiscal
borrowings by the government we are raising NIMs, deposits and loan growth
estimates over 2013-15. We believe a stubborn inflationary outlook should keep
interest rates higher, while higher quasi-fiscal funding would continue to
incentivise banks to aggressively mobilise deposits. Hence, we increase our
earnings estimates by 7-14% over 2013-15E and our target price to PRs350
(PRs168 earlier). MCBs superior asset quality (NPL ratio of 9% versus peer
average of 12%) and lower LDR make it the safest stock in the banking sector.
Biggest beneficiary of higher interest rates. MCB continues to enjoy the
highest NIMs among peers due to a better asset liability franchise as
reflected by its CASA of 88%. Given a high proportion of interest yielding
assets (84%) MCB would likely be the biggest beneficiary of higher interest
rates with NIMs estimated to expand by 46 bp in 2014.
Provisioning reversals to augment earnings growth. MCB's superior
asset quality due to better risk management and customer knowledge base
continues to support its earnings profile with provision reversals of PRs1.9
bn in 9M13. Given low LDRs (46%) and gradual improvement in macros we
expect provisioning reversals to continue which, along with higher margins
and stronger balance sheet growth, will drive an earnings CAGR of 17%
over 2013-16E.
Upgrade to OUTPERFORM, further re-rating likely. MCB trades at a 2014E
P/B of 2.2x on an ROE of 21%. While the valuation may appear expensive
compared to peers, a premium appears justified given its higher ROE and NIMs
and superior asset quality. Offering a 2014E dividend yield of 5% and 25%
potential upside on our new target price of PRs350 (from PRs168), we upgrade
MCB to OUTPERFORM from Underperform since we expect it to remain a
dominant franchise in the local banking space.

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KARACHI SE 100 INDEX which closed at 23776.64 on
26/11/13
Absolute (%) 3.4 4.4 64.7
Relative (%) -2.6 -2.6 18.4
Year 12/12A 12/13E 12/14E 12/15E
Net profit (PRs mn) 21,153.2 21,773.8 25,462.4 29,531.1
EPS (PRs) 21.2 21.9 25.5 29.6
Change from previous EPS (%) n.a. 7.1 12.0 14.1
EPS growth (%) 9.7 3.3 16.7 16.0
P/E (x) 13.2 12.8 10.9 9.4
Dividend yield (%) 4.2 4.6 4.9 5.2
BVPS (PRs) 115.2 112.5 125.2 141.9
P/B (x) 2.4 2.5 2.2 2.0
ROE(%) 21.4 19.7 21.1 21.8
ROA (%) 3.0 2.8 3.0 3.1
Rating (from Underperform) OUTPERFORM*
Price (26 Nov 13, PRs) 278.92
Chg to TP (%) 25.5
Enterprise value (PRs bn) 219.23


Research Analysts
Farhan Rizvi, CFA
65 6212 3036

27 November 2013
MCB Bank Limited MCB.KA / MCB PA
Price (26 Nov 13): PRs278.92, Rating: OUTPERFORM, Target Price: PRs350.00, Analyst: Farhan Rizvi
Upside 500.00 79.26 Peak P/B of 4.0x
Central Case 350.00 25.48 Justified P/B of 2.8x
Downside 80.00 (71.32) Trough P/B of 0.6x

Net interest margins (%) 6.76 5.76 6.22 6.29
Fee income (PKR mn) 6,385 7,050 8,156 9,615
Provision for NPLs (PKR mn) 294 (1,707) (514) 339
Valuation 12/12A 12/13E 12/14E 12/15E
EPS growth (%) 9.7 3.3 16.7 16.0
P/E (x) 13.2 12.8 10.9 9.4
P/B (x) 2.42 2.48 2.23 1.97
P/TB (x) 2.44 2.50 2.24 1.98
Dividend yield (%) 4.24 4.61 4.94 5.20
Interest income 68,444 65,220 78,353 89,596
Trading income 824 853 979 1,109
Other income 2,333 3,782 4,240 4,710
Total income 49,431 47,500 55,247 63,533
Other expenses 10,447 11,135 12,093 13,260
Total expenses 18,011 19,141 20,858 22,800
Loan loss provisions 294 (1,707) (514) 339
Associates/JV 296.6 676.5 793.8 818.6
Other non-operating inc./(exp.) 3.0 (434.6) (345.2) (46.5)
Pre-tax profit 32,477 32,631 37,855 43,905
Taxes 11,241 10,773 12,294 14,260
Minority interests 82.0 84.5 98.8 114.5
Preferred dividends
Analyst adjustments
Assets
Gross customer loans 262,598 273,101 303,143 351,645
Risk provisions 22,809 21,680 21,168 21,360
Interbank Loans 2,788 3,102 3,491 3,981
Fixed Assets 23,356 25,602 28,152 30,986
Intangibles 789 827 922 1,046
Other assets 46,011 48,533 52,179 57,659
Total assets 771,458 798,984 900,449 1,028,461
Liabilities
Customer deposits 544,988 607,662 689,696 789,702
Total deposits 633,949 654,856 739,750 849,052
Total liabilities 664,983 684,655 773,203 884,328
Minority interests 501.3 510.2 519.2 528.5
Preferred stock
Total liabilities & equity 771,458 798,984 900,449 1,028,461
Shares (wtd avg.) (mn) 1,012 1,012 1,012 1,012
EPS (Credit Suisse)
(PRs)
21.16 21.86 25.52 29.60
BVPS (PRs) 115 113 125 142
Tangible BVPS (PRs) 114 112 124 141
DPS (PRs) 11.8 12.9 13.8 14.5
Key ratios 12/12A 12/13E 12/14E 12/15E
(%)

ROE stated 21.4 19.7 21.1 21.8
ROE - CS adj. 21.6 20.0 21.4 22.1
ROA - CS adj. 3.00 2.82 3.04 3.10
Gearing (x) 7.21 7.11 7.03 7.11
Asset quality (%)
NPL/ gross loans 9.7 9.1 8.0 7.0
Capital ratios (%)
Tier 1 ratio 20.8 22.0 21.6 21.2
Growth(%)
Revenue (4.4) (1.3) 15.9 14.8
Net profit 9.7 3.3 16.7 16.0
Deposit 11.0 11.5 13.5 14.5

0
2
4
6
8
10
12
14
16
2008 2009 2010 2011 2012 2013
12MF P/E multiple

0.0
0.5
1.0
1.5
2.0
2.5
3.0
2008 2009 2010 2011 2012 2013
12MF P/B multiple

Source: IBES
27 November 2013

Regional Banks

National Bank of Pakistan
(NBPK.KA / NBP PA)

Asset quality concerns limit upside potential
Raise provisions and margins, lower deposit growth estimates. We
increase our provisions and margin estimates for 2013-15E given risk of
more negative surprises on asset quality and monetary tightening by the
SBP. Moreover, we lower our deposit growth estimates by 1.5-3.0% on
account of the new management's strategy to consolidate and clean-up the
balance sheet after a sharp expansion over the last few years. NBP's
earnings are estimated to decline by 50% in 2013 as management looks to
build necessary provisioning buffers given probable asset quality issues. We
therefore maintain our NEUTRAL stance on the scrip at current levels.
Negative surprises on asset quality likely. Recent changes in political set-
up and bank's top management has increased the risk of negative news flow
on asset quality. NBP recorded PRs4 bn of general provisions in 3Q as a
buffer to deal with future NPLs and considering more aggressive lending in
the last few years, negative surprise on asset quality cannot be ruled out.
We expect provisions of PRs16 bn in 2013 and PRs7 bn in 2014.
Skewed lending to PSE will restrict NIM expansion. Being the only major
government owned bank, NBP will continue to act as a key lender to
troubled Public Sector Enterprises (PSEs) such as PIA, Pakistan Steel,
Railways, and WAPDA. This would continue to restrict NIM expansion as
PSEs generally have delayed debt servicing patterns and tend to squeeze
liquidity forcing the bank to generate extra liability buffers. Moreover, weaker
earnings in 2013 will significantly reduce the full year dividend payout in Feb.
Maintain NEUTRAL, asset quality remains the biggest challenge. Given
near term weakness in earnings and uncertainty on asset quality, we are
reducing our estimates by 19-48% over 2013-15E. Our Gordon growth-
based target price of PRs53 implies a target P/B of 0.7x and a potential
downside of 3%. We therefore maintain our NEUTRAL stance on NBP. The
sharp fall in earnings may also result in lower payout with 2014E dividend
yield of 9% versus previous three-year average yield of 15%.
60
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40
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60

KARACHI SE 100 INDEX which closed at 23776.64 on
26/11/13
Absolute (%) 9.8 14.0 33.5
Relative (%) 3.8 6.9 -12.8
Year 12/12A 12/13E 12/14E 12/15E
Net profit (PRs mn) 16,162.6 8,119.6 14,849.5 16,955.8
EPS (PRs) 7.6 3.8 7.0 8.0
Change from previous EPS (%) n.a. -47.6 -18.6 -23.8
EPS growth (%) -11.4 -49.8 82.6 14.0
P/E (x) 7.2 14.3 7.8 6.9
Dividend yield (%) 12.8 6.4 9.1 9.1
BVPS (PRs) 81.8 64.9 69.5 73.5
P/B (x) 0.67 0.84 0.79 0.74
ROE(%) 11.4 5.6 10.4 11.1
ROA (%) 1.3 0.6 1.0 1.0
Rating NEUTRAL*
Price (26 Nov 13, PRs) 55
Chg to TP (%) -3.1
Enterprise value (PRs bn) -57.34


Research Analysts
Farhan Rizvi, CFA
65 6212 3036

27 November 2013
National Bank of Pakistan NBPK.KA / NBP PA
Price (26 Nov 13): PRs54.67, Rating: NEUTRAL, Target Price: PRs53.00, Analyst: Farhan Rizvi
Upside 140.00 156.08 Historical peak P/B of 2.2x
Central Case 53.00 (3.05) Justified P/B of 0.7x
Downside 28.00 (48.78) Trough P/B of 0.45x

Net interest margins 4.46 3.43 3.55 3.56
Fee income (PKR mn) 10,707 11,953 13,087 14,798
Provisions (PKR mn) 7,527 15,543 7,271 5,359
Valuation 12/12A 12/13E 12/14E 12/15E
EPS growth (%) (11.4) (49.7) 82.6 14.0
P/E (x) 7.2 14.3 7.8 6.9
P/B (x) 0.67 0.84 0.79 0.74
P/TB (x) 0.67 0.84 0.79 0.74
Dividend yield (%) 12.8 6.4 9.1 9.1
Interest income 100,092 96,058 117,412 129,164
Trading income 3,703 3,683 4,044 4,489
Other income 6,222 5,448 5,753 6,201
Total income 64,306 58,323 65,228 71,898
Other expenses 10,187 12,172 13,276 14,279
Total expenses 35,897 39,402 43,551 47,651
Loan loss provisions 7,527 15,543 7,271 5,359
Associates/JV
Other non-operating inc./(exp.) 2,376 4,210 4,984 3,821
Pre-tax profit 23,258 7,589 19,390 22,710
Taxes 7,095 (531) 4,540 5,755
Minority interests
Preferred dividends
Analyst adjustments
Assets
Gross customer loans 730,141 795,854 879,418 1,002,537
Risk provisions 72,760 87,954 94,898 99,938
Interbank Loans 38,495 61,852 62,401 71,654
Fixed Assets 27,909 27,878 27,847 27,814
Intangibles 41.3 22.4 0.5 7.0
Other assets 120,516 110,112 130,130 147,227
Total assets 1,309,339 1,424,068 1,557,698 1,719,556
Liabilities
Customer deposits 1,037,785 1,157,130 1,272,843 1,412,856
Total deposits 1,102,403 1,231,147 1,354,101 1,504,276
Total liabilities 1,158,062 1,286,014 1,409,802 1,563,290
Minority interests
Preferred stock
Total liabilities & equity 1,309,339 1,424,068 1,557,698 1,719,556
Shares (wtd avg.) (mn) 2,128 2,128 2,128 2,128
EPS (Credit Suisse)
(PRs)
7.61 3.83 7.00 7.97
BVPS (PRs) 81.8 64.9 69.5 73.5
Tangible BVPS (PRs) 81.7 64.9 69.5 73.4
DPS (PRs) 7.00 3.50 5.00 5.00
Key ratios 12/12A 12/13E 12/14E 12/15E
(%)

ROE stated 11.4 5.6 10.4 11.1
ROE - CS adj. 11.4 5.6 10.4 11.2
ROA - CS adj. 1.32 0.60 1.00 1.04
Gearing (x) 8.7 9.4 10.4 10.8
Asset quality (%)
NPL/ gross loans 12.2 12.3 12.2 11.2
Capital ratios (%)
Tier 1 ratio 13.1 11.3 10.9 10.3
Growth(%)
Revenue 0.8 (9.3) 11.8 10.2
Net profit (11.4) (49.7) 82.6 14.0
Deposit 11.9 11.5 10.0 11.0

0
1
2
3
4
5
6
7
8
2008 2009 2010 2011 2012 2013
12MF P/E multiple

0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
2008 2009 2010 2011 2012 2013
12MF P/B multiple

Source: IBES
27 November 2013
Companies Mentioned (Price as of 26-Nov-2013)
Allied Bank Limited (ABL.KA, PRs85.2)
Habib Bk (HBL.KA, PRs160.11)
MCB Bank Limited (MCB.KA, PRs278.92, OUTPERFORM, TP PRs350.0)
National Bank of Pakistan (NBPK.KA, PRs54.67, NEUTRAL, TP PRs53.0)
United Bank Limited (UBL.KA, PRs126.4, OUTPERFORM, TP PRs170.0)

For other ocmpanies mentioned please refer to Figures 48-51 on pages 21-24.

Disclosure Appendix
Important Global Disclosures
I, Farhan Rizvi, CFA, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and
securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in
this report.
3-Year Price and Rating History for MCB Bank Limited (MCB.KA)

MCB.KA Closing Price Target Price
Date (PRs) (PRs) Rating
29-Nov-10 154.02 132.98 U
27-Apr-11 170.45 138.84
28-Jun-11 163.55 190.08 N
29-Jul-11 154.07 192.56
26-Oct-11 131.43 173.55
22-Feb-12 146.88 161.98
18-Apr-12 157.55 157.27
14-Aug-12 164.23 150.00
02-Jan-13 185.76 158.18 U
12-Feb-13 194.03 168.18
06-May-13 216.72 168.20
* Asterisk signifies initiation or assumption of coverage.

UNDERPERFORM
NEUT RAL

3-Year Price and Rating History for National Bank of Pakistan (NBPK.KA)

NBPK.KA Closing Price Target Price
28-Jun-11 39.27 53.75 O
29-Aug-11 28.60 52.17
29-Mar-12 39.31 47.83
14-Aug-12 38.06 42.61 N
02-Jan-13 41.89 41.74
08-Apr-13 38.18 42.00

OUT PERFORM
NEUT RAL

27 November 2013
3-Year Price and Rating History for United Bank Limited (UBL.KA)

UBL.KA Closing Price Target Price
28-Jun-11 62.11 78.00 O
28-Feb-12 70.14 85.00
16-Apr-12 75.76 83.50
14-Aug-12 82.02 79.00 N
02-Jan-13 81.24 82.00
23-Apr-13 87.69 85.00

OUT PERFORM
NEUT RAL

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's
total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts stock rating are defined as follows:
Outperform (O) : The stocks total return is expected to outperform the relevant benchmark*over the next 12 months.
Neutral (N) : The stocks total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stocks total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stocks total return relative to the analyst's coverage universe which
consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutra ls the less attractive, and
Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stocks total
return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the
most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings
are based on a stocks total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd
October 2012 U.S. and Canadian ratings were based on (1) a stocks absolute total return potential to its current share price and (2) the relative attractiveness of a
stocks total return potential within an analysts coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total
return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definit ions, respectively. The 15% and
7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were
based on a stocks total return relative to the average total return of the relevant country or regional benchmark.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications,
including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other
circumstances.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24
months or the analyst expects significant volatility going forward.
Analysts sector weightings are distinct from analysts stock ratings and are based on the analysts expectations for the fundamentals and/or
valuation of the sector* relative to the groups historic fundamentals and/or valuation:
Overweight : The analysts expectation for the sectors fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analysts expectation for the sectors fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analysts expectation for the sectors fundamentals and/or valuation is cautious over the next 12 months.
*An analysts coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 42% (55% banking clients)
Neutral/Hold* 41% (49% banking clients)
Underperform/Sell* 15% (40% banking clients)
Restricted 3%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely
correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a r elative basis. (Please refer to
definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
27 November 2013
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Price Target: (12 months) for MCB Bank Limited (MCB.KA)
Method: Our target price of PRs350 for MCB Bank is derived using the Gordon growth model. We have used BVPS for 2014E and a target P/B
multiple of 2.8x based on sustainable ROE of 22.5%, COE of 17.5%, and growth internal equity of 12.5%. COE is based on a RFR of
11.0%, market premium of 5.8% and beta of 1.12. We have applied 25% preiumum for MCB's superior asset quality and best deposit
franchise.
Risk: Potential risks to our target price of PRs 350 for MCB Bank include regulatory risks, future international acquisitions, and changes in
interest rates and/or minimum deposit rate on savings account.
Price Target: (12 months) for National Bank of Pakistan (NBPK.KA)
Method: Our PRs53 target price for National Bank of Pakistan is based on sum of the parts (SOTP) valuation whereby we have valued the bank
using the Gordon growth model and its investment in Bank Al-Jazira at current market price less 20% float discount. We have used 2014E
book value per share (BVPS) and a target price/book (P/B) multiple of 0.7x based on sustainable return on equity (ROE) of 13.5%, cost of
equity (COE) of 17.5%, and growth in internal equity of 5%. COE is based on a risk-free rate of 11.0%, market premium of 5.8% and beta
of 1.15
Risk: Potential risks to our target price of PRs53 for National Bank of Pakistan include any regulatory penalties and public sector risk as it is
susceptible to supporting government's populist schemes as it is one of the few public sector banks remaining which would impact asset
quality and NIMs. Industry risks include changes in policy rates and/or the minimum satutory saving deposit rate than currently estimated
and policy.
Price Target: (12 months) for United Bank Limited (UBL.KA)
Method: Our PRs170 target price for United Bank is derived using the Gordon growth model. We have used a 2014E BVPS and a target P/B
multiple of 1.9x based on sustainable ROE of 20.5%, COE of 17.4%, and growth internal equity of 11.5%. COE is based on a RFR of
11.0%, market premium of 5.8% and beta of 1.1. We have also applied a 20% premium to the target multiple on account of the bank
strong balance sheet position and re-emergence of its international franchise.
Risk: Potential risks to our target price of PRs170 for United Bank include: (1) asset quality deterioration in the bank's corporate and
international loan portfolio which would subsequently impact margins and could have an impact on the bank's capital base and (2) turmoil
in the Middle East which could severely impact the international operations of the bank. Industry risks include changes in policy rate
and/or the minimum satutory saving deposit rate than currently estimated.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the
target price method and risk sections.
See the Companies Mentioned section for full company names
The subject company (MCB.KA, NBPK.KA, UBL.KA) currently is, or was during the 12-month period preceding the date of distribution of this report,
a client of Credit Suisse.
Credit Suisse provided non-investment banking services to the subject company (MCB.KA, NBPK.KA, UBL.KA) within the past 12 months
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (NBPK.KA) within the next 3
months.
Credit Suisse has received compensation for products and services other than investment banking services from the subject company (MCB.KA,
NBPK.KA, UBL.KA) within the past 12 months
Important Regional Disclosures
Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (MCB.KA, NBPK.KA,
UBL.KA) within the past 12 months
27 November 2013
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27 November 2013
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