KARACHI, July 4: The price of share in Bank Aljazira (BAJ) -– a Saudi bank in which National Bank of Pakistan (NBP) holds 5.8 per cent stake -— has increased sharply in the last eight trading sessions on the Saudi bourse. The price of the bank’s stock hit its all-time high of 369 Saudi riyals (SR) at the close of trading on Monday.

A report prepared by analyst Mohammad Imran at Jahangir Siddiqui Capital Markets noted that in the last eight trading sessions, Bank Aljazira had outperformed the Saudi market and its share price surged by 39 per cent to SR369, whereas benchmark index had risen by just three per cent during that period.

The Bank Aljazira issue is relevant in Pakistani context as National Bank of Pakistan holds 5.8 per cent shares in BAJ, which comes to 6.5 million shares (after split of 5 for 1 and subsequent bonus of 50 per cent). Any upward movement in the price of BAJ has positive impact on the reported book value of NBP, as those shares are marked to market in the books of the bank.

The exuberant performance of BAJ stock was believed to be due to the Saudi bank’s strong earnings growth in 1Q2006. The bank posted a rise of 817 per cent in its earnings to SR683 million (EPS SR6.07), which was slightly lower than profit for all of the year 2005 that stood at SR874 million (EPS SR7.8). Major growth was observed in fee income of the bank which rose by 607 per cent to SR614 million.The JSCM analyst pointed out that according to a notice of the Karachi Stock Exchange (KSE) dated February 27, 2006, NBP had to divest its holding in BAJ in order to open branches network in Saudi Arabia. The notice further stated that the board of directors of NBP had authorized the management to initiate process of divestment at the best possible price in coordination with the Saudi Arabian Monetary Agency (SAMA).

The price of BAJ holding in the books of NBP stood at Rs105 per share on December 31, 2005. Based on Monday’s closing price, the NBP would carry BAJ stock at Rs140, showing mark to market difference of Rs35 per share in six months (translating into Rs227.5 million increment on its stake of 6.5 million shares).

“Moreover, if the bank sells those shares at the prevailing market price, it would realize Rs35 billion which would have incremental yearly impact of Rs1.9 billion (EPS Rs2.7) in NBP’s earnings, assuming the realized amount to be invested at the benchmark six months T-bill at a prevailing rate of 8.4 per cent,” Mr Imran calculated.