The Bell about Banks – Elixir Securities Limited

Karachi, November 06, 2012 (PPI-OT): NBP: Attractive dividend yield but declining interest rate a risk

Limited asset expansion and declining NIMs restricted earnings growth

NBP posted earnings of PKR 11.8 billion (EPS: PKR 6.38) for 9MCY12, 4% higher than the same period last year.

According to Elixir Securities Limited, on a sequential basis, 3QCY12 earnings were recorded at PKR 3.3 billion (EPS: PKR 1.95), up 9% YoY and 1.4% QoQ. Earnings growth was restricted by 79bps decline in NIMs and a meager 5% growth in average assets over the year.

NBP            
PKR million 9MCY11A 9MCY12A YoY 3QCY11A 3QCY12A YoY
Net Interest income 33,175 30,913 -7% 10,490 9,814 -6%
Provisions 7,597 4,935 -35% 1,110 1,582 43%
NII excl. provisions 25,579 25,978 2% 9,381 8,232 -12%
Other income 13,176 15,880 21% 3,345 5,401 61%
Non interest expenses 22,004 25,055 14% 7,633 8,510 11%
Profit after tax 11,403 11,810 4% 3,311 3,608 9%
EPS (PKR) 6.16 6.38 4% 1.79 1.95 9%
Source: Elixir Research            

Further drop in NIM’s inevitable

NIMs for 3QCY12 settled at 4.21%, down from 4.43% in the preceding quarter on the back of a 150bps rate cut during the quarter under review. Furthermore, NIMs are estimated to drop by another 63bps QoQ as NBP has a relatively higher level of ADR at 66% compared to the sector’s 53% and asset pricing is yet to fully take effect.

This will be coupled with a higher minimum rate on savings deposits proportion of which has increased to 29% from 25% in Dec-11. Furthermore, recent lower than expected inflation figures have triggered expectations of another rate cut in the upcoming monetary policy which shall be a negative for the entire banking sector.

Increasing proportion of non-interest bearing securities in the investment portfolio

It is pertinent to note that NBP has been increasing its proportion of non-interest bearing securities which currently stands at 26% compared to 16% as of Dec-11. Investment of PKR 21.5 billion in mutual funds and an additional PKR 4 billion in equities was made during 9MCY12. This will help enhance the bank’s income through investment income and dividends to cushion against decline at the core level.

Significant surplus on revaluation raises book value

The bank recorded significant gains on its investments particularly in government securities, shares and mutual funds and in Bank Al Jazira. However, the same led to an increase in NBP’s deferred tax liability. The surplus on revaluation of these assets also led to an increase in the stock’s book value from PKR 72/share in Dec-11 to PKR 78/share by Sep-12.

Surplus on revaluation of assets – net
PKR million

Sep-12

Dec-11

Surplus on revaluation of fixed assets – net of tax

16,985

17,068

Federal Government securities

3,012

501

Term Finance Certificates

(61)

(75)

Shares and mutual funds

5,040

(339)

GoP Foreign Currency Bonds

354

(120)

Foreign Government Securities

64

(122)

NI(U)T Non-LoC Units

71

(22)

NIT Market Opportunity Fund

847

403

Investment outside Pakistan – Bank Al-Jazira

11,084

6,651

 

20,410

6,878

Deferred tax liability

(4,684)

(1,815)

Surplus / (deficit) on revaluation of Available-for-sale

securities – net of tax

32,711

22,131

Source: Company Accounts    

NPL accretion under control

NPLs increased by a meager 1.1% QoQ after excluding the impact of OAEM advances primarily for agricultural purposes and which do not require provisioning. However, ageing of loans led to an additional provisioning expense of PKR 330 million during the quarter which increased coverage to 76% in Sep-12 from 75% in Jun-12.

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