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Pakistan bank stocks downgraded at Bank of America

KARACHI: Pakistan banks were cut to “neutral” at Bank of America Corp. after helping the nation’s stock index post the world’s fourth-biggest gain this year.

Bank of America’s Merrill Lynch unit, citing the outlook for earnings and recent stock gains, lowered its ratings on MCB Bank Ltd. and United Bank Ltd., to “neutral” from “buy.” Allied Bank Ltd. and National Bank of Pakistan were reduced to “underperform” from “neutral.”

Signs of an improving economy have helped the Karachi Stock Exchange 100 Index jump 30 percent this year, lagging behind only benchmark indexes in Peru, China and Russia among the 89 tracked by Bloomberg. MCB, National Bank and United Bank are among the five best performers on the MSCI Asia-Pacific excluding Japan Financials Index in 2009.

“The market has incorporated the visible improvements on the macro front into banks’ share prices,” analysts Hamza A Marath and Alistair Scarff wrote in a report today. “The earnings growth momentum has not yet turned to an inflection point and we continue to foresee pressure” on return on equity, they wrote.

Pakistan’s central bank lowered its benchmark interest rate to 14 percent from 15 percent last week as inflation eased. The cut was the first since 2002.

“This is not sufficient to fully revive economic growth prospects,” the Bank of America analysts wrote, adding that Pakistan’s manufacturing industry may shrink 5.8 percent in the first eight months of the current fiscal year.

IMF Forecast: The International Monetary Fund forecasts the country’s economy will expand 2.5 percent in the 12 months ending June 30, the slowest pace in eight years.

MCB Bank, Pakistan’s largest bank by market value, is Bank of America’s top pick in the industry because of its “balance sheet strength, low risk-to-book value and attractive return potential,” the analysts wrote. The shares have jumped 62 percent this year in Karachi trading.

United Bank, the third-largest by assets, has rallied 51 percent this year, while National Bank, Pakistan’s biggest lender by assets, has surged 82 percent, the region’s second- best performer. Allied Bank, the nation’s fifth-largest lender by branches, has gained 47 percent.

United Bank said on April 20 first-quarter profit declined 13 percent after it set aside additional funds to cover bad debt. National Bank said on March 18 full-year net income fell 19 percent. courtesy bloomberg

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