Weak asset quality trims PNB's net profit to 24 quarter low

Most brokerages could cut their full year earnings estimates

Rising provisions for bad loans, higher treasury losses and muted loan growth marked Punjab National Bank (PNB)'s performance in the September 2013 quarter. The bank's net profit fell 52.6% to Rs 505 crore as compared to the September 2012 quarter.

This was 48% lower than Bloomberg consensus net profit expectations of Rs 981 crore. Notably, the net profit figure is the lowest for PNB since the September 2007 quarter or lowest in past 24 quarters. The bank had reported net profit of Rs 425 crore in the June 2007 quarter.  

The net interest income though came in line with street expectations at Rs 4,016 crore, up 10.1%. This growth was driven by loan growth of 6.5% which was lower than analysts' expectations of 7-8% loan growth.

The bank's loan growth has been in the single digits since the March 2013 quarter as management focuses on consolidation. Net interest margins was largely stable at 3.47 percent versus 3.5% in the September 2012 quarter.

"PNB results were much lower than expectations as restructuring and incremental slippages continue to remain high. The asset quality issues are dragging for too long in the bank with negligible loan growth. Given the weak numbers, we believe FY14 net profit estimates could be downgraded", says Siddharth Teli, Head of Equity Research, Religare Capital Markets.

As per consensus Bloomberg estimates, the bank's FY14 net profit is pegged at Rs 4,614 crore which appears to be a tall task given that net profit stood at Rs 1,780 crore in the first half of this fiscal. Overall, analysts remain skeptical on the Bank given its high exposure to troubled sectors and slowing growth despite cheap valuations of 0.5 times FY14 estimated book value.

For the September 2013 quarter, PNB's gross non-performing assets (NPAs) as well as net NPA ratios increased sequentially as well as over the September 2012 quarter.

The bank's gross and net NPA ratios stood at 5.14% and 3.07% up 48 basis points and 38 basis points respectively as compared to last year, while sequentially these ratios inched up by 30 basis points and 9 basis points respectively.

The bank's asset quality has been under pressure for past few quarters and the Gross NPA ratio has moved up from 1.8% in the March 2011 quarter to 5.14 prevailing. Not surprisingly, the provisions shot up by 76.8% to Rs 1,899 crore, pulling down the net profit.

PNB booked losses of Rs 48 crore on transfer of Available for sale (AFS) securities to Held to Maturity (HTM) category. It also distributed the total depreciation in this portfolio over three quarters and booked Rs 349 crore in the said quarter.