NBP poised for Rs238/share

May 19, 2026 (MLN): National Bank of Pakistan (PSX:NBP) is projected to reach Rs238/share by June 2027 from the current market price of around Rs178/share, while it is expected to offer investors a total return potential of nearly 46%, including dividend income, as improving profitability, stronger asset quality and the resolution of legacy pension issues position the bank for a broad-based re-rating.

In a detailed research report, Topline Securities reinitiated coverage on NBP with a “Buy” rating, citing multiple catalysts including sustainable dividend payouts, above-average capital buffers, improving credit quality, and attractive valuations relative to sector peers.

The brokerage expects the bank to post earnings per share (EPS) of Rs34.7 in 2026, followed by Rs40.7 in 2027 and Rs44.6 in 2028, despite a temporary earnings dip in 2026 due to lower interest rates and pressure on net interest margins.

These earnings forecasts imply a return on average equity (ROAE) of 15% and 16% in 2027 and 2028, respectively, significantly higher than the bank’s historical five-year and 10-year average ROAE of 12% and 11%.

The brokerage expects the bank to maintain a dividend payout ratio of around 70%, translating into dividend yields ranging between 13% and 17% during 2026–2028.

Source: Company Accounts, Topline Research

The brokerage noted that the resumption of dividend payments after a seven-year hiatus marks a major turning point for the bank, particularly for income-focused investors.

NBP shared a dividend of Rs8/share for 2024 and a significantly higher Rs35/share for 2025 after no payouts between 2017 and 2023 due to pension-related litigation.

According to the report, the elevated 2025 payout partly reflects accumulated retained earnings from prior years, while future payouts are expected to normalize around the 70% level, implying projected dividends of Rs24/share in 2026 and Rs28/share in 2027.

The report highlighted that NBP remains deeply undervalued compared to the broader banking sector.

The stock is currently trading at a 2026 estimated price-to-earnings (P/E) ratio of 5.2x and price-to-book value (P/BV) ratio of 0.7x, compared to industry averages of 6.7x and 1.4x, respectively.

A major pillar of the investment case is the bank’s improving asset quality. NBP’s non-performing loans (NPLs) declined to Rs223 billion in December 2025 from Rs269 billion a year earlier, while the infection ratio improved to 13.8% from 16.1%. The recovery was primarily driven by better prospects in the agriculture and cement sectors.

The bank’s total coverage ratio also climbed to an all-time high of 124% in December 2025, well above the industry average of 114%, providing a substantial cushion against future credit stress.

 It was noted that NBP’s net NPL ratio had turned negative at -3.55% by March 2026, highlighting the strength of provisioning coverage.

The brokerage further pointed to potential upside from the restructuring of several stressed exposures, including Hascol, PIA-related loans and PASSCO. While these restructurings have not yet been incorporated into earnings forecasts, successful execution could eventually result in provision reversals and additional profitability upside over the medium term.

According to the report, the bank’s international NPL portfolio largely concentrated in Bangladesh operations  remains a legacy issue rather than a sign of fresh deterioration.

The rupee value of these loans has risen mainly due to currency depreciation, while the bank has already scaled back its overseas footprint from 21 branches to 14, reducing the likelihood of further significant accretion in international bad loans.

Topline Securities stated that the long-standing pension issue, which had weighed heavily on the stock for years, has now been substantially resolved.

The Supreme Court had ruled on the pension case in 2017, while a review petition was dismissed in March 2024. The bank booked a one-time pension-related expense of Rs57.5 billion in 2024, which caused its cost-to-income ratio to spike to 74.5% and depressed earnings sharply.

However, with the bulk of pension provisioning now complete, the bank’s cost-to-income ratio normalized to around 40.6% in 2025. The brokerage expects the ratio to remain manageable at around 45% in 2026 before improving further toward 43% in 2027 and around 40% over the medium term.

The report also emphasized NBP’s strong capital position. The bank’s capital adequacy ratio (CAR) stood at approximately 22%, comfortably above the State Bank of Pakistan’s minimum regulatory requirement of 13%. Investment revaluation surplus stood at Rs74 billion in March 2026, while overall surplus net of taxes remained at Rs87 billion despite recent volatility in interest rates and bond markets.

Unlike many peers whose investment portfolios are concentrated in government securities, NBP benefits from sizeable local and foreign equity holdings, including a 3.7% strategic stake in Bank Al Jazira. The report said this diversified investment mix helps the bank absorb mark-to-market volatility more effectively.

NBP’s deposit franchise also remains one of its key strengths. Deposits stood at Rs4.1 trillion as of March 2026, placing the bank among Pakistan’s top three listed banks by deposit size. The bank operates 1,503 domestic branches alongside an international network, giving it a strong footprint in rural and semi-urban areas where competition remains relatively limited.

The bank’s CASA ratio improved to 80.8% in December 2025 from 78.9% a year earlier, supported by its extensive branch network and its role as the government’s fiscal agent for treasury operations, tax collection and public-sector payments.

However, the report noted that implementation of the Treasury Single Account (TSA) framework remains a challenge, as some government-related deposits could gradually shift to the central bank. Despite this, Topline believes a sizeable portion of government deposits will remain with NBP due to its state ownership and unmatched distribution network across remote regions.

The brokerage also identified several near-term triggers that could support earnings growth in coming quarters, including additional interest income from the New York Roosevelt Hotel loan book approved by the Economic Coordination Committee in December 2025, as well as income recognition related to wheat procurement financing.

Key risks identified in the report include faster-than-expected compression in net interest margins, weaker spreads on repo borrowings, slower current account deposit growth, adverse judicial outcomes related to pension matters, changes in payout policy and any renewed deterioration in asset quality.

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