Talk of turnarounds and National Bank of Pakistan (KSE: NBP) has managed a big one. The top line story remains the same almost with every big bank and NBP is no exception. The formula is simple. There is a willing borrower, ready to pay you lucrative rates on risk-free lending. You would simply do your job i.e. invest more and more in long-term government securities.
NBP seems to have effectively done that, as advances had not grown much by June-end. Nearly all the deposit growth was parked in investments in general and PIBs in particular. The healthy top line growth reflects just that.
That said, NBP is not the one shying away from lending either. It has a higher-than-industry ADR, with advances significantly outpacing investments. Not that it is by choice, it is more so by design that NBP ends up doing what banks should do more.
But the real story was not deposit rationalisation or change in the asset-mix. It was the speedy recovery of NPLs which has turned it around for the state-owned bank. NBP recorded a three time reduction in provision charges, which made all the difference. Mind you, NBP has historically carried high NPLs, which are still higher than peer average at nearly 17 percent. But the good part is that, there has been a steady decline in NPLs and the asset quality is improving gradually.
Another strength of NBP is its treasury wing. The non-core income on the back of commission, brokerage and capital market gains supplemented the bottom line well. The pre-tax profits swelled by a huge margin, more than doubling over the same period previous year.
The spreads may be low at the moment, but NBP will have it covered as long as government willingly continues to borrow. The reduction in NPLs and simultaneous recovery of bad loans are good signs in the times of low spreads. NBP cannot afford to relax though, given the volume of advances on its book. It still has some catching up to do in terms of improving coverage and CASA ratios.


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National Bank of Pakistan (Consolidated P&L)
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Rs (mn) 9MCY14 9MCY13 chg
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Markup Earned 83,398 73,455 14%
Markup Expensed 52,833 44,567 19%
Net Markup Income 30,566 28,888 6%
Provisioning/(Reversal) 3,431 11,977 -71%
Net Markup Income after provisions 27,135 16,911 60%
Non Mark-up/Interest Income 22,257 18,724 19%
Operating Revenues 49,392 35,635 39%
Non Mark-up/Interest Expenses 31,670 28,008 13%
Profit before taxation 17,722 7,627 132%
Taxation 6,009 1,663 261%
Profit after raxation 11,713 5,964 96%
EPS (Rs) 5.51 2.80
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Source: KSE Notice

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