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NBP - CY23 Analyst Briefing takeaways, (AKD Off the Analyst's Desk Feb 29, 2024)

National Bank of Pakistan (NBP) held its analyst briefing earlier today, during which the management discussed the following:

• Regarding the pension suit filed by retired employees against the bank, outcome of the review petition submitted should be announced soon. Management anticipates charge of PkR98bn assuming worse-case scenario, which could lead to an estimated decrease in the bank's CAR to ~19% (from 25.47% currently).
• With regards to impact of implementing IFRS-9, management estimates negative impact to the tune of PkR25-26bn on a pre-tax basis. Further, management attributed a portion of gains on the investment book towards the equity market.
• Regarding the dividend payout policy, management stated maintaining caution remains the plan, until ongoing contingencies are resolved. However, they remained hopeful with regards to distributions moving forward. Further, opting to raise capital through an ADT-1 issue isn't a viable option.
• With regards to Treasury Single Account (TSA), management stated the term has a very broad definition and it is yet unclear how it applies to NBP’s case, given that all government and quasi-government entities operate through NBP. However, the process has begun and PkR170bn of Govt’-based deposits have been withdrawn during CY23.
• Management attributed lower than average NIMs compared to the industry to high mark-up expenses from bank’s borrowings, which effectively reduced the net-interest spread. Additionally, bank took a hit to the profitability during 4QCY23, primarily from advances towards PIA.
• Management stated that conversion to an Islamic Bank remains a priority for now.
• Bank’s total assets currently stand at PkR6.65tn (up 27%YoY), while investments and advances are at PkR4.4/1.6tn, up 26.6%/13.4%YoY. Bank’s NPL coverage stood at 103% (specific coverage 92%) as at Dec’23 end. Finally, infection ratio stood at 13.5% (vs. 14.2% in CY22).
• Total branches currently stand at 1,508, including 18 foreign branches. Bank’s cost to income improved to 44.7% during CY23 (vs. 50.9% in CY22).
• Bank’s CET-1 and total CAR stood at 19.16%/25.47% by CY23 end, while leverage ratio stood at 3.12% (regulatory requirement: 3.0%).