NBP: profits up, but threats ahead

The announcement of NBPs half yearly result, drew the curtain on the earnings season for the big five banks.
The largest bank in the country achieved the milestone of crossing the trillion rupee mark as its assets were recorded at just over Rs1 trillion.
Strengthening its CASA, the bank was successful in easing its fixed deposits by 220 bps in the last six months to 28.5 percent of its deposits mix. The decline may be expected to continue in line with higher interest rates owing to monetary tightening.
But the banks advances in relation to its deposits base have been on a slippery slope for a year and a half. ADR fell nearly 9 percent, to 56 percent compared to the same period last year. A low ADR is a cause of concern and the banks managers must expand efforts to bring it in line with its peers.
Earnings were a tad lower with the market expectations; analysts were shooting for an EPS range of Rs6~6.23, therefore the scrip fell Rs3.08 at the KSE on Tuesday.
Perhaps the highlight of the result was the easing provisions for the public sector bank. It posted a decline of 20 percent in the first half of the year over the corresponding period. Sources at NBP revealed that a conscious effort on recoveries has reaped results for the bank.
Even so, the banks gross-infection-ratio persisted above 15 percent which is much higher than the peers. NBP ought to watch this out to compete in flood ridden difficult times ahead.
National Bank capitalized on strategic sales of its holdings in the equity markets. Offloading a hefty chunk of its shares in National Investment Trust; helped the bank achieve a nearly 20 percent increase in non-mark-up income.
However, administrative expenses remained on the high side for the bank, shooting up to nearly 21 percent. While a portion of the expenses may be attributed to the general inefficiency in the public sector, sources in the bank reveal that revisions in the pension formula account for a spike under this head. At the same time, its cost of funds soared by 24 percent in the last year.
Overall, National Bank has led the way as far as profits were concerned in the first half of the year. The floods raging through the country are bound to have an impact on the bank and industry it leads.

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NBP P&L

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Rs (mn)                  2QCY10   2QCY09  % chg    1HCY10    1HCY09  % chg

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Mark-up earned           22,434   18,472     21%   43,471    37,268    17%

Mark-up expensed        (11,748)  (8,959)    31%  (22,733)  (18,289)   24%

Net mark-up Income       10,686    9,513     12%   20,738    18,979     9%

Provisioning             (2,520)  (3,875)   -35%   (4,459)   (5,576)  -20%

Net mark-up income

 after provisions         8,166    5,638     45%   16,279    13,403    21%

Non-mark-up income        4,300    3,308     30%    8,300     6,967    19%

Non-mark-up expenses     (7,120)  (5,560)    28%  (12,929)  (10,681)   21%

Profit after taxation     3,605    2,067     74%    7,821     6,281    25%

EPS (Rs)                   2.68     1.54             5.81      4.67

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Source: KSE notice

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