UBL has made good strides in 1HCY19. The bank announced its financial results for 1HCY19 earlier this week, accompanied with an interim dividend of Rs2.5/share, in addition to a similar amount already paid in 1QCY19. The pretax profits jumped by a massive 70 percent year-on-year. When adjusted for the one-off event of pension charges previous year, the pretax profits went down by nearly 5 percent year-on-year.
The net mark-up income witnessed a single digit surge, owing to better earning yields on asset. The asset base stood at around the same levels as 1HCY18, but a changed asset profiling and higher interest rates, played in favour of UBL. The yields improved on both advances and investments portfolio, as the focus was shifted towards shorter term government papers, and selective lending. The NIMs also improved by 58 basis points to 4.3 percent, on the back of ever improving and cost efficient deposit mix.
The domestic deposit base has continued to grow steadily, having increased by 10 percent over last year to Rs1.1 trillion. More importantly, the focus has been on adding low cost and efficient deposits in the form of current and saving accounts, as CASA has stayed strong at nearly 87 percent. The SBP’s policy rates went up by 575 basis points over last year, but the cost of deposits was kept well in check at 4.8 percent – an increase of 220 basis points over the same period last year.
With the investment mix now tilted towards short term securities, the yield on investments went up from 7.5 percent in 1HCY18 to 8.8 percent in 1HCY19. The advances growth was rather muted, as the demand for loans has been rather conservative, keeping in view the overall economic situation and the interest rate scenario.
The non funded income dipped considerably, mainly on account of a massive decrease in gains on fixed income securities, which were realized in high value last year. Most other arms of non funded income, including foreign exchange, fee, commission, bancassurance and remittance businesses, stayed strong and contributed ably to the total income.
UBL did exceptionally well in terms of keeping a lid on administrative costs, reflective of the bank’s focus on maximizing synergies and adopting a lean model. The domestic loan book had more NPLs than the same period previous year, but still has not got out of control and is adequately provided for at 93 percent.
With the interest rate cycle believed to be nearing its peak, another round of asset re profiling cannot be ruled out in the future. A sudden sharp increase in advances may still be distant, but the bank in the meanwhile, would do well to focus on continuing to increase efficiency in terms of cost control and effective deposit strategy.
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