MOSL: PUNJAB NATIONAL BANK (Neutral)-Weak performance continues-asset quality stabilizes marginally

Punjab National Bank: Weak performance continues; asset quality stabilizes marginally

(PNB IN, Mkt Cap USD3.3b, CMP INR83, TP INR85, 2% Upside, Neutral)

• PNB reported a loss of INR9.4b due to elevated provisions of INR57.6b. Operating profit of INR41.9b (+30% YoY) was largely driven by ~22% YoY growth in NII (INR46.9b; domestic margins improved to 2.9%) and ~17% YoY decline in operating expense (INR24.6b). Other income declined 16% YoY to INR19.6b.
• Total provisions of INR57.6b (7% miss, loan loss provisions of INR49.8b) led to a PBT loss of INR15.6b. PBT loss was offset to some extent by tax credit of INR6.2b.
• Fresh slippages came in at INR52.5b (5.3% annualized, INR73.6b including debits in existing accounts), while recoveries and upgrades increased sharply to INR84.4b. Asset quality improved marginally, with absolute GNPLs/NNPLs decreasing by 4%/10% QoQ, driving a 12bp/64bp QoQ decline in GNPL/NNPL ratios. GNPL/NNPL ratio, thus, stood at 18.26%/10.58%, while total stressed assets stood at INR869b (19.14%) v/s INR918.5b (19.49%) in 4QFY18.
• CAR ratio improved to 9.62% (+42bp QoQ), with the CET-1 ratio improving to 6.05% (+10bp QoQ), while overall Tier-1 stood at 7.33% (+21bp QoQ). CAR will further improve to 10.3% after considering the recent capital infusion of INR28.16b from the government.
• Other highlights: (1) Bank has made a further provision of INR18.6b with respect to the fraud account (INR71.8b already provided till Mar'18); balance provision to be made in the next two quarters. (2) Unamortized gratuity provisions of INR1.26b to be provided over the next two quarters. (3) INR12.08b of MTM losses to be provided over the next three quarters.