Upside to loan growth
We expect the listed licensed commercial banks (LCBs) to book anaverage loan growth of 25% in FY11, picking up from the average lending growth of 22.52% YOY recorded in FY10Q4.We believethe positive macro economic outlook will translate to higher demand for credit aided by the low interest rates.
We feel following sectors are likely to boost the loan growth; SME– construction, agriculture, Corporate – leisure, energy,construction, trade, Personal – pawning, housing and leasing.
NPLs – An unlikely cause for concern
Despite a high loan growth forecast, we anticipate the gross nonperforming loans (NPLs) to reside around 6% in FY11 due to the improving debt servicing capacity of borrowers. Exceptionallyhigh NPLs are expected to decline in FY11, which will contribute to lower overall NPLs.
Tax cuts to help the industry
The proposed tax cuts (Financial Services VAT (FS VAT) from20% to 12% and the Income Tax from 35% to 28%) are expected to boost industry lending and thereby resulting in higher profits.
Our picks
We recommend SAMP and NTB on the basis of low P/Es, PBVand attractive growth prospects over the next 12 months.
*Since NDB Bank PLC is the parent company, it is excluded from the recommendation analysis as a company policy.
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