With a remarkable year nearly behind us, with both banks under review showcasing stellar performance, attention is now driven towards upcoming quarters as both groups seek to increase their regional footprint though different strategies.
From a top line perspective, both banks are expected to benefit from a full financial year under elevated rates, which will prove beneficial in upcoming quarters as assets continue to reprice.
Cost of fund should also increase in the near term as we noticed a change in components of Deposits, with a shift towards lower term deposits.
We expect the local central bank to take more dovish stance as quickly as next year as we expect rates to drop in the second half of 2024, as the BOM would look for an early exit from its tightening cycle in order to support the local economy. The increased interventions of the fiscal side on monetary matters in the past weeks reinforced our views.
Loan quality is expected to remain stable amid increased social measures in the last budget speech, including a monthly allowance for households with mortgages of up to Rs 5.0m to cater for rising cost of debt.
Volume of loans on the MUR side should benefit from the renewal in of the home ownership scheme along with the various infrastructure projects undertaken this year, both from the private and public side.
On the FCY side, strategies continue to diverge for both groups, as MCBG continues to extend its regional network through representatives’ offices, SBMH seeks to increase its foothold through potential acquisitions in coming years.
This diverging strategy should keep cost to income ratio on different trajectories, with the ratio for SBMH staying on the high side.
Overall, we estimate the fair value of MCBG at Rs 480.00 and Rs SBMH at Rs 10.36. Given the substantial discount to FV we trigger a BUY recommendation on both stocks.
SWAN Capital Solutions - Banking Report 2023