The State Bank of Pakistan has increased policy rate by 150bps to 12.25 percent. This was higher than market expectations. It comes right after the Staff Level agreement between the International Monetary Fund (IMF) and the government, analysts said. "We expect the IMF program to be approved in the next couple of months," an analyst at Topline Securities said.
He said the rate hike will be negative for leveraged sectors such as cement, steel and fertilizer. Cash-rich companies like ENGRO, PTC, OGDC, PPL, LOTCHEM, LUCK, etc, will benefit. Higher interest rate will improve NIMs of the banks with BAFL, BAHL, MCB and MEBL to be the major beneficiaries, he added.
An analyst at Arif Habib Limited said that the banking sector earnings will benefit from the latest 150bps hike in the policy rate. "We reiterate that banks with a low PIB base and high current accounts proportion are to be amongst the major beneficiaries," he said. Banks' topline with greater exposure towards advances would also benefit more from higher rates on lending, he added.
Low PIB base and higher exposure towards short-term securities, ie, MTBs is helpful for banks as re-pricing of assets would fuel investment yields. "We also highlight that banks with a high PIB exposure may see unrealized marked-to-market losses, which will affect book values," he said. A high current accounts base would mute the impact of rising rates on cost of deposits.