Morning Call about National Bank of Pakistan – Arif Habib Limited

Karachi: Conference call Update and Result Review of 1HCY11 National Bank of Pakistan (NBP) held a conference call on September 12, 2011 to discuss its 2QCY11 results.

According to Arif Habib Limited, the bank had posted an earnings of PKR 3,871mn (EPS: PKR 2.30) in 2QCY11 compared to PKR 3,609mn (EPS: PKR 2.15) in the corresponding period last year. On sequential basis 2Q earnings were down by 8.3% QoQ. During the 1HCY11, NBP’s net income stood at PKR 8,092mn (EPS: PKR 4.81) registering a modest growth of 3.4% YoY. The primary reason for such a below par performance were higher provisioning against NPLs due to the aging factor and a 12% YoY higher operating expenses.

Rising Net Interest Income

The bank’s net interest income depicted a rise of 9.4% YoY to reach PKR 22,685mn in 1HCY11. The bank managed to augment its interest income by 8% YoY as its average earning assets have improved by 7% YoY. The NIMs have improved by 16bps to 6.25% during the period

Higher provisioning hurting the profitability

NBP has realized provisioning against NPL to the tune of PKR 4,623mn during 1HCY11 compared to PKR 2,878mn in the 1HCY10, a rise of 60.6% YoY. This rise is primarily attributed to accretions of NPLs and downgrading of existing classified loan. Since December 2010, the bank’s NPLs have augmented by 25% to stand at PKR 108.6bn. However, according to the management, total NPLs include PKR 26bn government guaranteed loans while PKR 14bn are related to energy chain’s circular debt. The classification of GoP backed loans have resulted in suspension of realization of mark up to the tune of PKR 2bn (PKR 1.19/share).

Focus toward expanding Fee & Commission income

The bank’s Non interest income has grown by 18.4% to PKR 9,831mn during 1HCY11 compared to PKR 8,300mn in the corresponding period last year. Fee and Commission income, whose contribution towards NFI is around 50%, has jumped by 8% to PKR 16,549mn. According to the management, the bank intends to focus towards expanding trade finance business and is also opening dedicated corporate branches.

 

NBP Financial Highlights
PKRmn2QCY111QCY11YoY1HCY111HCY10YoY
Interest income23,76423,1702.6%46,93543,4718.0%
Interest expense12,02512,225-1.6%24,24922,7336.7%
Net Interest Income11,74010,9467.3%22,68520,7389.4%
Total Provisions 4,4661,671167.3% 6,1364,45537.7%
Total Non Interest income6,1743,65768.8%9,831 8,30018.4%
Operating Expenses8,141 6,58023.7%14,72112,92913.9%
Profit before tax5,306 6,353-16.5%11,65911,6540.0%
Net income 3,871 4,220-8.3%8,0927,8253.4%
EPS2.30 2.514.814.65
Source: Company Accounts & AHL Research

Dividend Income up by 18% YoY while Other income rises by PKR 1bn

During 1HCY11, bank’s dividend income has augmented by 8.2% while capital gains were down by 5.2% YoY. The bank’s equity investment by end of June 2011 stood at PKR 36.9bn, up by 23% since December 2010. Moreover, the other income surged by PKR 1bn from just PKR 52mn as the bank realized PKR 967mn as compensation for delayed refund. This is on account of more than 3- months delay in refund of tax which was paid in excess by it.

Recommendation

Arif Habib Limited has revised Arif Habib Limited’s earnings estimates for CY11 to PKR 9.66/share from PKR 10.69/share while Arif Habib Limited’s target price for December 2011 have revised downward from PKR 65/share to PKR 55.9/share. Arif Habib Limited has increased Arif Habib Limited’s projections for bank’s provisioning against NPLs on account of rising classified loans. The bank is currently offering an upside of 25% from yesterday’s closing price of PKR 44.80/share. The scrip is currently trading at an attractive CY11E P/B and Dividend Yield of 0.53x and 13.4%, respectively.