Prime Bank PLC, a prominent player in the country’s banking sector, has recently captured the attention of investors following the release of a favourable equity note by EBL Securities.
The report highlights the bank's remarkable financial performance in the first half of 2024, revealing a robust growth trajectory amid a challenging economic landscape.
In H1 2024, Prime Bank experienced an impressive 35.6 per cent year-on-year increase in operating income, largely driven by an 11.6 per cent rise in net interest income. This surge was bolstered by the ongoing rise in interest rates on bank loans, alongside a significant 81.2 per cent boost in investment income.
The bank's Earnings Per Share (EPS) have steadily increased from Tk 1.5 in FY2018-19 to Tk 4.2 in FY2022-23, reflecting consistent growth over the past five years.
The bank's net profit also saw substantial growth, climbing 42.2 per cent year-on-year in H1 2024, attributed to higher operating income and effective deposit mobilisation strategies.
Prime Bank has maintained a five-year compound annual growth rate (CAGR) of 8.7 per cent in loans and advances and 9.1 per cent in deposits from FY19 to FY23.
Despite operating in a high interest-rate environment, Prime Bank has managed to keep its net interest margin stable at approximately 3.5 per cent.
The interest rate spread has shown a favourable upward trend, increasing from 3.90 per cent in FY2021-22 to 5.95 per cent in H1 of 2024, closely aligning with the industry average of 6.03 per cent as of June 2024.
Furthermore, Prime Bank has consistently provided a 17.5 per cent cash dividend since FY2020-21, demonstrating its commitment to shareholder returns. The bank's dividend yield has remained above 8 per cent, and with ongoing earnings growth, it is expected to maintain this level of disbursement in the future.
Importantly, Prime Bank maintained a low non-performing loan (NPL) ratio of 3.54 per cent in 2023, significantly below the industry average of 9 per cent.
However, the bank is not without its challenges. There are rising concerns regarding its investment portfolio, particularly after provisions for diminution in the value of investments surged to Tk 20 crore in H1 of 2024, compared to a negative provision of Tk 30 lakh in H1 of 2023.
This is attributed to a 33.6 per cent increase in investments in government bonds, which now constitute around 90 per cent of the bank's total investment portfolio.
The recent 50 basis point increase in the policy rate by the central bank — now at 9.5 per cent with potential further hikes — could exacerbate these challenges, leading to possible declines in the value of government securities and increased provisions for the bank.
Adding to the concern, Prime Bank has been accused of granting an interest waiver of approximately Tk 50 crore to a 'wilful defaulter' on a loan of Tk 58 crore, which has sparked debates about regulatory compliance and stakeholder protection.
Looking ahead, the bank has allocated Tk 27 crore for loan provisions as of H1 of 2024, and this figure is likely to rise as Prime Bank typically increases its provisions in the latter half of the year.
Consequently, analysts suggest that the year-end EPS may be slightly lower than the current annualised estimate.
Prime Bank continues to stand as a key institution in Bangladesh's banking landscape, operating through 146 branches and 82 agent banking outlets, alongside providing offshore banking services through three Offshore Banking Units.
As the bank navigates the challenges and opportunities ahead, stakeholders will be keenly observing its strategies and performance in the evolving economic environment.
