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Morning Call about Higher provisioning and suspended mark-up flattens profitability – Arif Habib Limited

Karachi: National Bank of Pakistan (NBP) during 9MCY11 has posted net earnings of PKR 11,403mn (EPS: PKR 6.78), a rise of mere 0.3% YoY.

According to Arif Habib Limited, in the 3QCY11, the bank’s net income cloaked in at PKR 3,311mn (EPS: PKR 1.97) depicting a decline of 14.5% QoQ. This QoQ decline mainly stemmed from decision of the bank not to realize interest income to the tune of PKR 1bn related to Power Holding Limited (PHL) TFCs which were converted into T-Bills and PIBs on November 6, 2011. With this conversion the bank is likely to book suspended interest income in 4Q, which consequently will amplify earnings to Arif Habib’s expected CY12 EPS of PKR 9.66. The stock at yesterday’s closing price of PKR 44.67/share is offering 46% upside to Arif Habib’s June -12 Target Price of PKR 65/share and is trading at CY12 P/B of 0.52. Moreover, the stock is offering dividend yield of 12.3% with expected payout of PKR 5.5/share along with the full year results.

9MCY11 Review

The Net Interest Income of the bank registered a rise of 4.8% YoY to PKR 33,175mn compared to PKR 31,662mn in the corresponding period last year. This growth is mainly emanating from higher KIBOR which was up by 121bps YoY and 5% YoY improvement in average earnings assets. During the period average paying liabilities witnessed a rise of 5% as deposits base augmented by 7.3%

The bank’s provisioning has risen by 7.7% during the 9MCY11 period. This expansion is mainly on account of 18.4% YoY rise in provisioning against classified advances to PKR 5,432mn due to fresh accretions by PKR 32bn (it includes government backed loans) and the aging of Nonperforming loans. NBP’s coverage ratio during the period declined to 56.2% while infection jumped 20.4% during the period

Non-funded income has witnessed an increase of 15.7% YoY from PKR 11,388mn in 9MCY10 to PKR 13,176mn in 9MCY11. The is primarily on the back of tax refunds of PKR 949mn realized during 2Q and 35% YoY higher income from dealing in foreign currencies. While fee and commission income remained stagnant as the government reduced commission on its transactions.

NBP’s deposit since December 2010 has declined by 4.1% from PKR 832bn to PKR 798bn on September 31, 2011. Major decline (12.4% since Dec 2010) was witnessed in saving deposits; consequently resulting in CASA to drop from 63.6% in Dec 2010 to 62.4% in Sept 2011. On the other hand bank’s advances are up by 7.6% to PKR 579bn while investments are down by 15.8% as the exposure in T-bills has dropped by 35% since December 2010.

 

NBP Financial Highlights
PKRmn 3QCY11 2QCY11 QoQ 9MCY11 9MCY10 YoY
Interest income 22,553 23,764 -5.1% 69,487 65,579 6.0%
Interest expense 12,062  12,025 0.3% 36,312 33,917 7.1%
Net Interest Income 10,490 11,740 -10.6% 33,175 31,662 4.8%
Total Provisions 1,089 4,466  -75.6% 7,225 6,707 7.7%
Total Non Interest income 3,345 6,174 -45.8% 13,176 11,388 15.7%
Operating Expenses 7,654 8,141 -6.0% 22,375 19,709 13.5%
Profit before tax 5,092 5,306 -4.0% 16,751 16,634 0.7%
Net income 3,311 3,871 -14.5% 11,403 11,367 0.3%
EPS 1.97 2.30 6.78 6.76
Source: Company Accounts & AHL Research

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