Clamping down on slippages

PNB reported Q3FY13 PAT of R13.1 bn (+14% y-o-y, +23% q-o-q): This was higher than our expectation of R11.3bn driven by better asset quality progression—lower loan loss provisions. GNPLs (gross non-performing loans) were flat quarter-on-quarter as strong recoveries from high slippages during the previous two quarters helped. Core PPoP (pre-provision operating profit) growth (-1% y-o-y) was weak and the impaired loan formation rate remained high at R55bn (2.1% of trailing 12M (month) loans, non-annualised) vs. 2.9% last quarter.

Underlying asset quality stress remained elevated, but recoveries helped: Gross slippages were high at R30 bn (1.1% of loans vs. 1.8% last quarter). Restructuring was at R37 bn—at 1.4% vs. 1.1% in Q2FY13. However, recoveries and upgradations from high slippages in past two quarters helped GNPL progression–flat q-o-q. We need to monitor whether the high recoveries can be sustained going forward.

Domestic loan growth slowed to 11% y-o-y vs. 16.5% last quarter: Even this was supported by additional loan disbursements to risky sectors like infra (led by power) and iron and steel sector.

NIMs (net interest margins) were down 3 bps q-o-q: This was mainly driven by lower loan yields–down 19 bps q-o-q, 50bps YTD (year-to-date). We expect loan spreads to remain under pressure, as the impact of a recent 25 bps cut in lending rate filters through. Management guided to stable margins of 3.5%, as it expects to deploy excess SLR (statutory liquidity ratio) into advances. Given the weak capex outlook and management targeting to shift

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