Bank of Punjab Limited (BOP) announced its 1QCY21 results today reporting above expected earnings of PKR 1.8Bn (EPS: PKR0.69), ↑23/65% YoY/QoQ respectively.

Key highlights of the result are summarized below:

Net Interest Income (NII) increased by a healthy 17% on a YoY basis which we opine is due to the sizable build-up in the investments book which increased by a sizable 57% YoY in the outgoing year. On a QoQ basis, NII increased by 9%. Looking ahead, we expect NIMs to remain under pressure until interest rates reverse however, balance sheet expansion will likely limit the overall decline, in our view.

Non funded income of the bank shot up in 1Q courtesy robust fee income and hefty capital gains. Non-Interest Income of the bank posted an increase of 26/70% YoY/QoQ to close at PKR 2.5Bn.

Fee income underwent a healthy increase of 31/19% YoY/QoQ to climb to PKR 1.1Bn. We opine the surge in fee income to relate to greater trade and consumer related business and higher transaction based banking. On the other hand, capital gains continued to remain strong and support the rise in non-funded income having shot up by 26% YoY to PKR 1.3Bn. We attribute healthy income from this end to the timely build up in the investments book of the bank which has shot up by 57% YoY over the outgoing year.

Lower than expected provisioning charge of PKR 851Mn further provided respite to the bottom-line. Although we await further clarity, we opine this charge to relate primarily to COVID-19 related general provisions. Note that the bank booked general provisions to the tune of PKR 3.3Bn in CY20.

Rising Operating expenses pulled the plug on earnings growth in 1Q having shot up by a sizable 21/14% YoY/QoQ to settle at PKR 5.5Bn. Effective tax rate was also higher at 40%.

We have a BUY stance on the stock with Dec’21 TP of PKR 12/sh.

Courtesy – BMA Capital Management Ltd