MOSL: PUNJAB NATIONAL BANK (Neutral)-Asset quality improving gradually; expect earnings turnaround over FY19-21
Punjab National Bank: Asset quality improving gradually; expect earnings turnaround over FY19-21
(PNB IN, Mkt Cap USD3.9b, CMP INR74, TP INR80, 9% Upside, Neutral)
- After posting losses in the previous three quarters, PNB reported net profit of INR2.5b in 3QFY19, led by lower provisions of INR27.5b (38% YoY /72% QoQ decline). NII increased 8% YoY to INR42.9b (6% beat), led by 6.7% YoY growth in gross domestic advances and 2.64% improvement in margins.
- Operating expenses grew 6% QoQ to INR30.1b as PNB charged INR1.62b towards the Employee Share Purchase Scheme (ESPS) and provided INR1.2b for wage-related provisions (outstanding wage provisions at INR5.9b). PPoP grew 9% QoQ to INR31b.
- Overall loan growth was muted at 1% QoQ (-4% YoY) due to sharp rundown in overseas advances. Retail loans grew 15% YoY driven by housing loans. Deposits growth was muted, which led to an increase in the CD ratio to 66.8% (v/s 66.3% in 2QFY19). PNB’s CET-1 ratio increased to 6.9%, led by ESPS of INR6.5b and therefore Tier-1 ratio also improved to 8.2%.
- Gross slippages declined to INR39.9b (3.7% annualized) while recoveries and upgrades stood robust at INR44.2b. Asset quality improved with absolute GNPLs/NNPLs reducing 4%/7% QoQ, thus driving 83bp/68bp QoQ decline in GNPL/NNPL ratios to 16.33%/8.22%.
- Provisions declined 72% QoQ to INR27.5b (NPA provisions: INR25.6b, including residual INR20.1b provisions for the fraud account). The bank benefitted from write-backs of INR4.9b on the treasury portfolio.
Punjab National Bank is a commercial banking group based in India. Co. is engaged in offering its customers personal, social, agricultural, international and corporate banking services. Co. specialized in offering commercial banking, retail banking, SME banking, rural banking, transaction banking, merchant banking, financial inclusion, credit syndication, treasury, internet & mobile banking services. Co. maintains over 6,300 branches and 7,900 ATMs across 764 cities. Co. has a banking subsidiary in the U.K., as well as branches in Hong Kong, Dubai and Kabul. Co. maintains representative offices in Almaty (Kazakhstan), Dubai, Shanghai (China), Oslo (Norway) and Sydney (Australia).
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