PNB’s profits were up 0.5% yoy (+9% qoq, in-line with estimates) and were supported by its high NIMs (expands further), robust loan growth (well above industry), strong deposit franchise and some trading gains in 3Q. However, delinquencies increased substantially (mainly in the agricultural segment) and coverage levels dropped meaningfully – suggests caution given its large (16% of book) agri portfolio.
PNB’s margins expanded more than estimated to 384bps, driven by liability repricing. NPL uptick, lower coverage raises concerns on sustainability of earnings. Expect an EPS of Rs 108 and Rs 124.5 for FY10 and FY11 respectively.
Union Bank’s 3Q10 profits were down 20%yoy (but 9% above our estimates) and were driven by a strong 37bps qoq NIM expansion. Operationally the quarter was decent with a pickup in loan growth (+7% qoq, corporate and agri focused), fee incomes remaining healthy, operating expenses under control and preprovisioning profits (ex trading gains) up 4% yoy (+32% qoq). However, most of the gains were offset by the weak asset quality performance (rise in NPLs and
decline in coverage levels), which raise concerns on quality, earnings stability.
Union’s NPLs increased 9% qoq (but +14% qoq adjusted for Rs1bn of unaccounted NPLs from the debt waiver scheme). Expect an EPS of Rs 35 and Rs 39 for FY10 and FY11 respectively.