PNB posts Rs 9.4 bn Q1 loss: Investors awaiting asset quality relief

Punjab National Bank
Scam-hit Punjab National Bank’s (PNB’s) operational performance in the June quarter (Q1), announced on Tuesday, appears to stay ahead of the Street’s expectations, with the actual net loss being Rs9.4 billion compared to the expected loss of Rs23.4 billion (Bloomberg consensus). 

Even other operating metrics such as net interest income or NII (up 21.7 per cent year-on-year to Rs46.9 billion) and operating profit (up 30.4 per cent year-on-year to Rs42 billion) were ahead of the estimates. Yet, the stocks fell eight per cent on Tuesday. For one, even as the bank has been working towards improving asset quality, the gains are not significant. In Q1, some of the operational boost came as certain provisions were pushed ahead.

While PNB will hold an investor call on Wednesday, prima facie, gross non-performing assets (GNPAs or bad loans; 18.3 per cent of gross advances) were down 4.3 per cent, sequentially, due to recoveries of Rs3.36 billion from an account under the National Company Law Tribunal. 

However, as 90 per cent of fresh disbursements in Q1 were marked to A & above-rated accounts (indicates lower default probability), issues with legacy accounts still persist. Slippages (loans turning bad) increased 11 per cent year-on-year to Rs73.6 billion in Q1. On an annual basis, it shows about seven per cent of loans are turning bad. Total stressed loans still remain at 19.1 per cent of advances, against 19.5 per cent in March quarter. “Amid elevated level of slippages, PNB would require huge provisioning going ahead, which will continue to weaken its capital base," says an analyst. He believes PNB would need around six quarters to clean up balance sheet.

Besides, PNB’s improved operating performance was due to the NCLT recovery and reduced operating costs, aided by deferment of employee expenses rather than balance sheet improvement. 

The bad loan recoveries did lower provisioning requirements on sequential basis (down 72 per cent), but PNB carried forward some provisions to subsequent quarters. "With these unamortised losses and asset quality woes, PNB's profitability would continue to remain under pressure," said another analyst.

While PNB has outlined plans to improve its operating performance and asset, analysts are advising that investors should avoid bottom fishing till clarity emerges.