With bad loans way higher than its peers, National Bank continued to struggle in the last quarter. High growth in mark up expense, stagnant other income and its inability to apply cost cutting solutions reduced the lenders profits by 21 percent in the nine months ending September.
Although, the banks provisioning against NPLs in the last quarter is 20 percent lower than the previous one, this is much less than the average 50 percent reduction for three similar size banks - MCB, UBL and HBL. This signals that being a government institution NBPs inefficiencies are ever increasing. Mind you, NBPs bad loans ratio is the highest amongst peers at 13.91 percent and still increasing, up 102 basis points in the last quarter.
As a consequence, NBPs return on shareholders equity dropped to mere 16 percent in last twelve months. Although this trend is visible across the industry, unlike the rest, NBPs expense to revenue ratio deteriorated by 15 percent between September 2008 to September 2009. Also the lenders cost of funds rose by 45 percent last year, whereas its yield on earning assets increased by mere 7 percent.
Although, the bank has maintained its industry leader status, its deposit market share was slashed by 112 bps to 15.75 percent in the last quarter with HBL trailing closely at 14.65 percent. Despite 2.6 percent decline in advances (35 bps decline in its market share), the banks advance-to-deposits ratio improved by 237 bps to 74.8 percent owing to 5.5 percent erosion in its deposits base.
All its efforts to raise deposits and advances share by 30 and 112 bps, respectively, with 70 bps decline in its infectious ratio in the quarter before last were back to square one in the last quarter -- at a time when the rest of banks are healing their wounds amid gradual economic stabilization. Ali Raza and team ought to shape up fast to maintain NBPs industry leadership and keep returns to investors at decent levels.
In the last nine months, NBPs mark up on earning assets increased by 23 percent owing to much higher advances and slight improvement in earning yield. But much higher cost of funds - up 67 percent - reduced the net mark up gain to 21 percent. And to the like of industry, 90 percent increase in provisioning squeezed the core income gain to mere 3 percent.
The banks non core income (11% decline) is skewed by a one-off compensation for delayed funds amounting Rs 967 mn in the last year; but barring that, non-interest income declined by mere 4 percent. Interestingly, however, despite the economic slowdown amid lack of trade activities, the banks fee commission and brokerage income soared by 15 percent.
NBP is currently trading at a price-to-book multiple of 0.74 on its September book value and by adjusting for all of its un-provided bad advances, it is trading at a P/B multiple 0.85x.
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National Bank Profit and Loss accounts
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Rs (mn) 3Q-09 3Q-08 Growth 9M-09 9M-08 Growth
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Mark-up earned 18,663 15,210 23% 55,932 43,227 29%
Mark-up expensed (8,959) (7,189) 25% (27,248) (16,270) 67%
Net mark-up Income 9,704 8,021 21% 28,684 26,957 6%
Provisioning (3,198) (1,680) 90% (8,773) (6,715) 31%
Net mark-up income
after provision 6,507 6,341 3% 19,910 20,242 -2%
Non-markup income 4,273 5,024 -15% 11,240 12,585 -11%
Operating revenues 13,978 13,045 7% 39,924 39,542 1%
Non-markup expenses (5,470) (5,037) 9% (16,150) (13,827) 17%
Profit before taxation 5,310 6,327 -16% 15,000 19,001 -21%
Profit after taxation 3,770 4,814 -22% 10,051 12,696 -21%
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EPS 3.50 4.47 9.34 11.80
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