Bank of Palestine (BOP.PS)

Transcription

1 Bank of Palestine (BOP.PS)

2 Economic & Sector Overview Despite the ongoing political instability in the Palestinian territories, the "transport, storage and communications", trade, real estate, and "hotels and restaurants" sectors managed to achieve higher-thanexpected growth in the first nine months of Preliminary figures unveiled that real GDP growth in the Gaza Strip & remaining West Bank retracted by 3.6% during the first three quarters of 2006 against the same period in 2005 as a result of the Western aid freeze. This compares with an expansion of 4.9% and a real per capita growth of 1.8% to USD1,268 in The Palestinian banking sector has witnessed a steady growth, particularly since Many new foreign and local banks opened branches in the Palestinian National Authority (PNA)-ruled areas while others have been restructured to cope with developments in the banking industry. A Palestinian policy for banking and finance was also reviewed, safeguarding local and international investors against all forms of price manipulation. In addition, improvement of services and market efficiency has been achieved through the introduction of new systems and top-notch technology. The financial intermediation sector grew by 5.5% in the first three quarters of 2006, while its contribution to GDP rose to 4.6% from 4.2% posted during the same period in Macro Economic Indicators in Gaza Strip & Remaining West Bank* In USD million (3Qrtrs) 2006 (3Qrtrs) Real GDP 3, , , , , , ,152.7 Real GDP Growth Real Per Capita GDP in USD 1, , , , , Financial Intermediation (Value- Added) Sector's Contribution to GDP Sector's Growth Source: Palestinian Central Bureau of Statistics, (*) Remaining West Bank : Includes all the West Bank except for those parts of Jerusalem which were annexed after 1967 occupation by Israel. Background With a capital of LE5.1 million, Bank of Palestine LTD (BOP) was established in Gaza in under the Companies' Law No. (18) for the year when Gaza was still under Egyptian Jurisdiction. It was the only Palestinian bank to operate in the strip at that time, providing small short-term loans to businesses and individuals. In 1967, the bank was shut down by Israeli forces after their occupation of the West Bank and the Gaza Strip. The bank was re-opened in 1981 in the Gaza Strip after it fought a legal battle against the Israeli occupation authorities. However, after Palestinian banks were allowed to operate in the Palestinian territories under the PNA - rule in 1994, BOP expanded across the West Bank. The bank now boasts 28 branches and sub-branches in the West Bank & the Gaza Strip, which is considered the largest network of branches in Palestine. The bank's authorized capital stands at USD50 million and its paid-up capital amounts to USD36.3 million following the distribution of USD11.6 million in stock dividends to the holder of record on April 14 th, For the third time, the bank was presented with JP Morgan Chase Elite Quality Recognition Award for "straight through payments" in This prize comes in recognition of the bank's efficiency in running operations. The bank was listed on the Palestine Securities Exchange (PSE) on Nov. 9 th, The bank adopted a policy of maintaining a ratio of facilities to deposits of 52.7% Investment co. Ltd is a wholly-owned subsidiary of the bank with a paid-up capital of USD0.1 million and a total shareholders' equity of USD0.193 million. The company's main purpose is to carry out the 1

3 construction and maintenance work needed for the bank and to enter into competitive biddings to supply the bank with certain equipments. Current Situation At the end of 2005, the bank held 9.45% of total deposits with Palestinian banks and 12.95% of total credit facilities. The bank continued in 2005 to operate as a commercial bank, offering credit facilities to various sectors, retail and corporate, with a concentration on the retail sector. In 2006, the bank embarked on the construction of a new regional management branch in Ramallah. In addition, the bank's management announced that it will launch a new branch in Salfet in the West Bank. In August 2006, the bank obtained a license from the Securities Commission to offer brokerage services through Brokerage for Financial Securities firm, a subsidiary of BoP. The company, which has a capital of USD1 million, will start its operations at the beginning of 2007, as the eighth brokerage company in Palestine. Financial Highlights Although the political turmoil took its toll on the Palestinian economy in 2005, BOP was able to maximize its returns, capitalize on the series of interest rate rises, and introduce new lines of services. Net interest and commission income unveiled a strong growth trend during the last few years, as it grew by 38.2% in 2005 to USD million against JOD million in The bank's bottom line posted an outstanding growth of 159.4% in the fiscal year 2005 reaching USD million against USD5.660 million in Therefore, EBITDA margin and net income margin improved to 76.4% and 50.6% respectively as of 2005 from 56.1% and 27% in By end of September 2006, BOP's net interest and commission continued its upward movement, growing by 40.4% against the first half of the same year. This is attributed to the 47% increase in interest income at the end of September 2006 against the end of June. BOP's bottom line, in the meantime, amounted to USD million, surging by 138% when compared to H1 2006, while EBITDA jumped by 50% to USD million. Therefore, the bank's margins have improved considerably as illustrated in the table below. The bank has been diversifying its revenue sources as is clear from the Non-Interest Income/EBITDA ratio, which rose to 35.9% at the end of Q Worth noting is that the bank's policy of developing and expanding its sources of income has helped it achieve exceptional results and increase shareholders' equity to USD million at the end of 2005 and to USD million at the end of the first nine months of Profitability Indicators Q06 1H 06 3Q06 Net Income Margin 20.0% 27.0% 50.6% 67.8% 32.3% 54.7% EBITDA Margin 48.5% 56.1% 76.4% 67.8% 59.3% 64.7% ROA 0.7% 1.3% 3.0% 1.2% 1.1% 2.2% ROE 9.8% 18.2% 33.7% 12.0% 11.7% 23.8% Interest Expense / Interest Income 21.1% 11.9% 11.5% 17.1% 18.4% 23.8% Interest Income / Avg Interest Earning Assets 3.90% 3.86% 5.03% 1.69% 3.49% 4.6% Interest Exp / Avg. Int Bearing Liab. 0.86% 0.49% 0.63% 0.30% 0.70% 1.2% Net Spread 3.0% 3.4% 4.4% 1.4% 2.8% 3.4% Non Interest Income / EBITDA 77.6% 21.4% 25.8% 14.5% 21.8% 35.9% Source: Jordinvest 2

4 The bank enjoy a good liquidity position as is clear from the Gross Credit Facilities to customers' deposits ratio of 52.1% at the end of the third quarter of 2006 and the current ratio of 1.06x. Liquidity Indicators Q06 1H 06 3Q06 Gross Credit Facilities/Customers' Deposits 48.2% 56.0% 63.0% 59.8% 63.8% 52.1% Current Ratio (x) Source: Jordinvest. *Calculated using the net credit facilities The bank enjoys a capital adequacy ratio of 13.23% which is higher than the 8% ratio set by the Basel Committee. The committee makes it obligatory for banks to hold a capital adequacy of at least 8% of a basket of assets measured in different ways according to credit risk, market risk, and operational risk. Capitalization Indicators Q06 1H 06 3Q06 Equity / Total Assets 7.6% 7.2% 8.8% 9.7% 9.5% 9.1% Equity / Gross Credit Facilities 21.4% 17.8% 18.2% 20.8% 19.3% 22.4% Capital Adequacy Ratio N.A 14.1% 13.2% N.A N.A N.A Source: BOP's Annual Reports, Jordinvest * Calculated using the net credit facilities BOP's total assets clocked in at USD million in 2005, up 15% against 2004, while net credit facilities made an average of 41.8% of total assets. Net credit facilities at the end of 2005 came in to USD million, up 46.7% against The bank, which focuses on growing its credit facilities, is also keen on maintaining a high quality of assets. This can be noticed from the percentage of Non-Performing Loans (NPLs) to credit facilities which is very minimal. In addition, the bank keeps a sufficient provision to guard itself against the risk of bad debts. Assets Quality NPLs (USD) 13,384,935 12,758,079 6,366,800 NPLs / Gross Credit Facilities 11.34% 7.31% 2.66% NPL / Net Credit Facilities 12.96% 8.02% 2.74% Provisions / NPL 92% 104% 95% Source: BOP Annual Reports, Jordinvest Long-term debt is almost absent in the bank's financial statements. However, 91.2% of the bank's capital is financed by short-term liabilities. Worth noting is that customers' deposits make an average of 83% of total liabilities. The bank has been putting a lot of efforts in an attempt to achieve a higher operating efficiency by implementing cost cutting measures, focusing on staff training, and switching to electronic banking operations. The table below demonstrates the improvement in efficiency indicators in the past few years. Efficiency Indicators Q06 1H 06 3Q06 Operating Expenses / EBITDA 183.6% 99.7% 56.7% 62.1% 90.4% 50.6% Staff Expenses / EBITDA 87.2% 50.9% 30.6% N.A 37.1% N.A Source: BOP's Annual Reports, Jordinvest 3

5 Below is a table that presents BOP main financial figures for the past few years, in addition to our projection for the coming three years, taking into consideration the historical performance. Main Financial Figures and Ratios M All figures in JOD000 Cash at Banks 41,069 57,346 57,876 32,423 67,285 74,014 81,415 Current Assets 302, , , , , , ,926 Total Assets 333, , , , , , ,137 Current Liabilities 300, , , , , ,83 658,722 Total Liabilities 308, , , , , , ,525 Shareholders' Equity 25,216 31,066 43,600 54,699 58,179 77,154 98,975 Outstanding Shares 20,320 21,680 24,693 36,299 36,299 36,299 36,299 Net Interest Income 9,719 14,101 21,270 19,746 25,335 30,403 38,003 Net Interest & Commission Income 12,375 20,994 29,016 23,812 33,336 40,003 50,004 Total Expenses 11,031 11,736 12,571 13,936 19,451 20,813 22,269 EBITDA 6,008 11,777 22,173 15,405 17,725 22,802 28,502 Net Income 2,476 5,660 14,684 13,021 16,500 18,975 21,821 EPS BVPS DPS N.A N.A N.A Price End of Year (USD) P/E (x) N.A N.A P/BV (x) N.A N.A Div Yield N.A N.A N.A Market Capitalization ,751, ,709,148 N.A N.A N.A Source: PALTEL's Annual Report, Jordinvest * Ratios were calculated using the price of December 12 th and data for first nine months. 4

6 Stock's Key Data (From November 9 th 2005 to end of Nov 2006) Period Open (USD) 5.75 Period Close (USD) 3.84 Period High (USD) 6.75 Period Low (USD) 2.55 Period Percentage Change (%) Period Change (USD) Total Volume 16,227,580 Total Value (USD) 64,646,144 Average Close (USD) 3.98 Average Volume 63,888 Average Value (USD) 254,512 Source: Jordinvest BOP against Al-Quds Index Al-Quds Nov Feb-06 16/5/ Aug Nov BOP Index BOP 5

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