>Punjab National Bank (CITI)

3Q09 Results: High Octane Performance, but…

* Profits up 86%, well ahead of expectations — PNB has recorded a high-growth
quarter; on balance-sheet, profits and a more-aggressive-than-most approach.
Its P&L is strong with varied drivers; the rapid balance-sheet expansion,
however, catches the eye for its aggression, and probably warrants caution.

* P&L: firing on all cylinders — The P&L is robust – strong NII driven by asset
and margin expansion, 40%+ fee income growth, trading gains on the back of
falling rates, and portfolio write-backs. While this provides the cushion for
enhanced loan-loss provisioning and higher employee charges, we do believe
this could well be the peaking of the currently high earnings momentum.

* Balance sheet: Too fast, too risky? — PNB’s loans are up 39% yoy, 9% qoq; an
acceleration over previous growth levels, and about the highest in the system.
While PNB’s overall asset quality performance seems relatively OK, the pace of
growth, a higher than industry level incremental deterioration, its high yield
portfolio, and its aggressive growth into a challenging asset environment,
suggest incremental asset risk could well be higher than peers. It has not yet
shown up meaningfully; but the quarter would put PNB under greater watch.

To see full report: PNB