Bank of Punjab: An investment opportunity after a decade of capital management

March 22, 2019 (MLN): The Bank of Punjab has successfully turned the tables around after a decade long struggle of restructuring and capital management, especially at a time when the banking sector is set to yield on rising interest rates.

BoP had declared net profits of Rs. 7.6 billion (EPS: Rs. 2.85) for the year ended December 31, 2018, as compared to losses of Rs. 3.3 billion incurred last year, as it successfully transited its losses from last year into positive gains due to positive change in total income, absence of provisions and write-offs, and tax rebates.

This upward trajectory in returns is expected to continue, especially with the hike in interested rate by 450 bps along with limited credit charge ahead which are likely to provide strong impetus to BOP’s ROE during FY19-21.

According to an analysis done by Insight Securities, the deposits market share of the bank is expected to grow to 4.5% whereas CASA deposits are likely to improve to 69.6% by 2021. Assets may grow at 9.5% CAGR in next 3 years (Investments by 17.5% and Advances by 4.7%). On the other hand, NIMs are likely to show a modest growth to 3.9% in 2019 (avg. 4.2% in 2019-21) vs. 3.4% in 2018, since CoD is more sensitive to interest rates.

However, the report suggests that these higher payouts still seem dubious as the bank’s CAR currently stands at 13.2%, which is still low within the context of IFRS-9. Moreover, impact of harsher macro-economic situation, sharp rise/fall in interest rate, higher NPLs, further increase in taxes on banks, and higher compliance/KYC requirements, etc. continue to pose threats to the Bank’s profitability.

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