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Bank of Punjab’s mounting NPLs erode profit in 2019

Bank increases provision for NPLs to Rs 45.12 billion from Rs 43.53 billion in 2018

By M Jahangir Hayat

LAHORE: The Bank of Punjab (BoP) mounting Non- Performing Loans (NPLs) have eaten into the bank’s profit as they soared to Rs 51.36 billion in 2019 from Rs 49.38 billion in 2018, reducing the cash dividend of shareholders just to 7.50 percent per share, BoP Annual Report 2019 indicated.

As per the report the bank has to increase provision for the NPLs from Rs 43.53 billion in 2018 to Rs 45.12 billion while Rs 6.24 billion are not covered by the provision.

The bank earned profit before provisions of Rs 15.82 billion during the year 2019; however, due to the rising NPLs from Rs 49.38 billion in 2018 to Rs 51.36 billion in 2019, the bank has to set aside a provision for NPLs of Rs 1.78 billion during the year 2019 that has eaten into the overall profitability of the bank for the year under review depriving the shareholders of their due share in the earnings of the bank, the report showed.

In 2018, the bank had received over Rs 1.15 billion reversals that enabled the bank to distribute 7.50 percent cash dividend to the shareholders after a considerably long time.

The Bank’s net profit stood at Rs8.277 billion for the year ended December 31, 2019 instead of Rs 10.02 billion as compared to Rs7.621 billion in the same period last year.

The BoP has a long history of accumulating abnormally high NPLs and setting aside provisions against the NPLs, the past years report indicated.

In 2015 the total NPLs of the bank were Rs 57.07 billion and it has to put Rs 30.59 billion as provision while in 2016 the total NPLs stood at Rs 54.95 and the bank set aside Rs 31.46 billion as provision, the report said. In 2017 the NPLs declined to 50. 95 billion and the bank set aside Rs 45.56 billion as provision for NPLs depriving the shareholders of any cash dividend and other benefits.

In 2018 the bank paid cash dividend of 7.50 percent to the shareholders after so many years as it realised over Rs 1.148 billion reversals against NPLs and the total NPLs stood at Rs 4939 billion, however; the bank has again paid 7.50 percent cash dividend from its profit while NPLs have again touched to a new high during the three years from 2017 to 2019 and the bank has to increase provision to over Rs 45 billion’ the Annual Report 2019 showed.

Banking sector experts are of the view that the high volume of NPLs can cause a significant drag on the bank’s performance in the form of reduction in net interest income, increase in impairments costs, additional capital requirement for high-risk weighted assets, lower ratings and increased cost of funding, adversely affecting equity valuations, reducing risk appetite for new lending and additional management time and servicing costs to resolve the problem.

They are of the opinion that banks with a large amount of non-performing loans relative to their total assets are also a less attractive stock investment than those whose books paint a more favourable picture.

“If a bank’s percentage of non-performing loans increases, it could cause its stock price to go down. Banks that see an increase in non-performing loans should reevaluate their lending practices and take steps to better vet their borrowers to protect their own best interests and those of their stockholders,” they say.

However, BoP Acting President Khalid Siddiq Tirmizey has said that “All possible legal efforts are being made to recover the outstanding Non-Performing Loans (NPLs). It is encouraging that despite various legal impediments, the Bank has successfully recovered/ regularised NPLs portfolio worth billions of rupees in last few years. Considering the importance of recovery of NPLs in further improving overall assets profile and its direct impact on Bank’s future profitability, the management shall continue to remain focused on this front.”


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