>PUNJAB NATIONAL BANK (IDFC SSKI)

HIGHLIGHTS OF Q1FY10 RESULTS

Punjab National Bank (‘PNB’) delivered strong net profit growth of ~62.4% yoy to Rs8.32bn in Q1FY10, ahead of our estimates of Rs7.0bn. The outperformance was driven by strong core performance and robust treasury gains.

■ Incremental restructurings surprise at ~3% of the book…: PNB incrementally restructured ~Rs50bn of advances during Q1FY10 (as against pending application worth ~Rs8bn in March 2009), amounting to 3.2% of net advances. This takes the cumulative restructuring to ~6% of the loan book. PV loss provisions of Rs1.3bn were made during the quarter, amounting to ~2.6% of restructured loans.

■ …while Gross NPAs remain steady: Gross NPAs remained steady at 1.8% in Q1FY10, and Net NPAs at 0.19%. Provision coverage ratio came in at 89.6% as against 90.5% in Q4FY09. The bank continues to deduct floating provisions of Rs10.8bn from NPAs by RBI’s permission. (Exhibit 5)

■ Healthy NII growth led by improving CD ratio: NII came in at Rs18.6bn, (in line with our estimates of Rs18.5bn), a 28.9% yoy growth, buoyed by an improving CD ratio and yoy improvement in margins.

■ Margins expand on a yoy basis: In Q1FY10, NIMs held up – an increase of ~15bp yoy to 3.41% - owing to rapid re-pricing of bulk deposits and contained sub PLR lending. Yields on advances declined by ~50bps qoq owing to PLR cuts affected in the quarter while average cost of deposits declined by ~30bp qoq to 5.94%. Sub-PLR proportion of the book has declined to ~30% as against ~60% earlier. (Exhibit 1)

■ Robust non-fund income; stellar treasury gains: Non-interest income grew by 113% yoy to Rs9.70bn, buoyed by strong treasury profits of Rs3.59bn (~23% of operating profit) and traction in CEB (~45% yoy growth). (Exhibit 3)

■ Strong deposit growth; CASA slips: Growth in total deposits was strong at 27% yoy and 4.4% qoq. PNB’s CASA ratio declined by ~70qoq and ~300bp yoy to 38.3%.(Exhibit 2)

■ Provisioning expenses in line: The bank made provisions of Rs3.0bn, of which Rs2.7bn are specific loan loss provisions (including provisions on restructured assets of Rs1.3bn). The bank booked write-back of MTM.

To see full report: PNB