::BMA Trade::

Banks: NBP - Fragile Recovery; Still Not Impressed

NBP posted PAT of PKR7.8bn (EPS 5.81) for 1HCY10, depicting a healthy 25% YoY growth

On the positive side, NBP surprisingly booked reversals in NPLs which declined by 4% QoQ to PKR69.7bn. Infection ratio has also improved to 13.4% in Jun10 from 14.1% recorded in Mar10. Due to higher exposure in commodity financing, other agri-related loans and textile, we remain pessimistic on asset quality for NBP as post flood impact is yet to be booked

Rationalizing cost of funds (-6bps) and improved earning asset yields helped increase margins by 8bps QoQ

We expect asset quality concerns to overshadow positive impact of non interest income and margins and revise CY10 EPS forecast and Target price down by 3% and 1% respectively

NBP currently trades at PBV multiple of 0.67x compared to an average of 0.9x for the banking sector and offers a meager 1% upside to our TP of PKR61/sh (avg. of PBV, DDM & RIVM). Considering declining ROE with asset quality concerns, we maintain a cautious stance on the scrip

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