EUR 4.27 For Business Accounts Only

Bank of Punjab (BOP): 4Q2018 EPS of Rs0.78 Vs 4Q2017 LPS Rs2.47 (+23% QoQ); (Above expectations)

• BOP announced its 4Q2018 earnings of Rs0.78/share compared to a loss of Rs2.47/share in the same period last year. The earnings were better than expectation due to a significant increase in net interest income (NII), up 32% YoY. To recall, BOP had booked a provision charge of Rs12.7bn in 4Q2017 which had caused the bank to suffer a loss in the said quarter as the bank was required to provide for the backlog of its NPLs. Moreover, the bank also announced a cash dividend of Rs0.75/share in the outgoing quarter.
• Net Interest Income (NII) of BOP improved by 32% YoY to Rs6.0bn in 4Q2018 which was better than expectations. We attribute this rapid increase in NII to 425bps hike in policy rate during 2018 as well as 29% YoY increase in Advances.
• BOP booked a provision reversal of  Rs137mn despite the poor equity market performance as well as slowing economy. This was in comparison to Rs12.7bn provision charge booked in the same period last year.
• Non-interest income of the bank remained relatively flat (down 2% YoY) at Rs828mn during 4Q2018 due to increase in other loss by Rs82mn to Rs1.3bn. Fee, commission & brokerage income was up 6% YoY to Rs2.1bn in 4Q2018.
• Non-interest expense of BOP increased by 37% YoY to Rs3.6bn. This takes cost to income ratio to 53.9% compared to 49.7% in the same period last year..   
• In 2018, BOP reported EPS of Rs2.85 vs LPS of Rs1.28 in the same period last year. The primary reason for increase in profits was provision reversal of Rs1.2bn compared to a provision charge of Rs14.7bn in the same period last year. Moreover, NII is up 29% YoY due to loan growth as well as monetary tightening.
• Key risks for the company include 1) delay in hike in policy rate, 2) lower than expected advances and deposit growth, 3) deterioration in Pakistan macros, & 4) pile up in NPLs.