BOP hints at possible share buyback if stock remains undervalued

September 18, 2025 (MLN): The Bank of Punjab (PSX: BOP) has signaled that it may evaluate a share buyback if management believes the stock is undervalued, though it currently prefers rewarding shareholders through dividends.

Management indicated that a hybrid approach of dividends and repurchases could also be considered in the future.

This came during the bank’s corporate briefing session for 1HCY25, where BOP reported profit after tax (PAT) of Rs6.8bn (EPS: Rs2.1), compared to Rs4.8bn (EPS: Rs1.5) in the same period last year the highest half-yearly operating profit in its history.

Management expects continued NII growth in 2HCY25 on the back of deposit mix improvements, further repricing, and a focus on asset quality.

On the macro front, they believe interest rates are close to bottom, projecting a maximum additional cut of around 125bps by 1QCY26, with 100–150bps of easing expected over the near term.

The bank also reaffirmed its full commitment to Islamic banking, noting that its comprehensive conversion plan has already been submitted to the Punjab government. BOP aims to complete the transition well ahead of the December 2027 deadline.

At current levels, the stock is trading at forward P/B multiples of 0.6x for CY25E and CY26F, leaving management confident about its long-term value proposition.

For 2QCY25 alone, earnings stood at Rs4.8bn (EPS: Rs1.45), up 55% YoY and 175% QoQ.

 Alongside the results, the bank shared an interim cash dividend of Rs1 per share, marking its first such payout since listing in 1991, enabled by recent regulatory approvals.

Net interest income surged to Rs35.8bn in 1HCY25, driven by repricing of term deposits and robust low-cost deposit mobilization.

Management noted that only 25% of this growth stemmed from MDR removal on public sector deposits, while the bulk (75%) was supported by improved current account balances, innovative deposit products, and enhanced trade and cash management services.

Deposits climbed 23% YoY to Rs1.95tr by June 2025, with management expecting to surpass Rs2tr by year-end and targeting over Rs2.5tr within the next three years.

The current account mix has already exceeded the earlier target of 22%, reaching 24% in June 2025, while average low-cost deposits rose by 40%.

Around 87% of term deposits have been repriced, with the remainder scheduled during the ongoing quarter, which is expected to further bolster margins.

Gross advances stood at Rs777bn in June 2025, with nearly one-third allocated to SME and agriculture sectors, 77% of which are covered under first-loss guarantee schemes.

Despite flood-related disruptions, only 8% of the loan book is exposed to affected regions, and overall asset quality remains secure with 93.5% of loans insured, just 6.5% unsecured, and only 0.4% exposed to potential provisioning risks.

On the investment side, management disclosed that 53–54% of the PIB portfolio is floating rate (average maturity 2.5 years), 17–18% fixed rate (average maturity 2.7 years), while 23–24% is parked in T-Bills.

The floating PIBs currently earn a spread of around 80bps, with the overall investment portfolio yielding close to 12%.

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