The Bank of Punjab (BOP) announced its 2QCY21 results today reporting above expected consolidated earnings of PKR 3.7Bn (EPS: PKR1.4), ↑74/102% YoY/QoQ respectively. The bank did not announce an interim dividend. Key highlights of the result are summarized below:

NII increased by a sizable 25% on a YoY basis in 2Q (↑21% YoY in 1HCY21) to settle at PKR 7.1Bn despite interest rate cuts over the past year. On a QoQ basis, NII increased by only 2%. We opine the massive YoY surge in interest income to overall balance sheet expansion (sizable 11.9%/~PKR 100Bn QoQ increase in deposits in 2QCY21) which translated to greater income from both the investments and loan books that have been scaled up by 18% and 13% YoY respectively. Going forward, we expect NII accretion to continue due to sizable additions in balance sheet assets.

NFI on the other hand, declined by a sizable 62/27% YoY/QoQ respectively to close at PKR 1.9Bn. The decline in non-funded income despite 43/23% YoY/QoQ improvement in fee income was due to the absence of substantial capital gains. Note that the bank booked capital gains to the tune of PKR 353Mn in 2Q vs. PKR 3,761/1,262Mn booked in Jun-20/Mar-21 respectively. We expect the higher fee income to emanate from greater commission, trade income and card related fee. Forex income however, declined by 50/12% YoY/QoQ to PKR 66Mn in 2Q.

Operating expenses rose by 20% on a YoY basis while on a QoQ basis, they recorded a decline of 11.2%. The sizable increase in admin expenses is primarily on the back of greater compensation expense (up 21.5%/PKR 990Mn YoY in 1HCY21) and other operating expenses (up 46.9%/PKR 905Mn YoY in 1HCY21).

Primarily, earnings deviation from our forecasts emanated from provision reversals and lower tax charge. Note that the bank booked reversals to the tune of PKR 218Mn in the outgoing quarter compared to a charge of PKR 2,801/851Mn in 2QCY20/1QCY21 respectively. Moreover, effective tax rate of only 12.7% in the previous quarter which resulted in a saving of PKR 0.43/sh (assuming a tax rate of 39%) further jacked up the bottom-line.

Courtesy – BMA Capital Management Ltd.