With a representation of 60 percent in the total deposits and over 52 percent in the total advances, the performance of big five banks (HBL, MCB, NBL, UBL, ABL) seems to depict a true picture of the banking industry.
With continuous monetary easing proving to be a harbinger of doom for the entire industry, the mighty five were equally unable to find a safe-haven. Quite unsurprisingly, the top line of big five banks could barely muster a skimpy three percent year-on-year growth in the first quarter of the current fiscal year.
Among the bigger five, HBL survived through the low interest rate backdrop most heroically, as evident by a stupendous 18 percent year-on-year growth in its top line. ABL fills the second spot with eight percent growth. ABL also had the distinction of being the only big among the top-five to have registered a year-on-year increase in NII. Conversely, the other three banks witnessed top line erosion.
The collective performance of big five banks during 1QCY13 speaks volume of the favourite pastime - parking funds in government papers (see ADR and IDR). Symptomatic of their cautious lending approach of late, the drop in the toxic assets of top five banks comes as no surprise (see Infection ratio).
Here, NBP deserves recognition for succumbing to its core duty of lending to private sector while its peers were seeking refuge in risk-free government securities.
Despite a modest growth in the low cost deposits (see CASA ratio), big five banks witnessed squeezed spreads in the 1QCY13. This largely owes to a hike of 100 basis points in the floor rate of saving deposits.
The banks, somewhat diluted the negative impact of weaker spreads through superior income diversification. Gain on sale of securities makes up a sizeable portion of bigger banks non-markup income.
According to an industry insider, the banks smartly realised the capital gains on the securities held by them as the rate cut of 250 basis points since 1QCY13 had increased their value significantly. Besides, election boom in the stock market also buttressed the non-markup income by boosting the dividend income.
Unfortunately, in the presence of other depressing factors, non-markup income proved to be a damp squib. The superior non-markup income couldn rescue the bottom line of big five banks which slid by nine percent year-on-year on consolidated basis.
As the banking sector moves ahead the 2013 journey, expenses are likely to rear its ugly head again as SBP has given another SBP jolt to the sector by instructing to pay at least the minimum rate on average monthly balance instead of minimum balance of saving deposits. Experts envisage this shift to wolf down banks profits by over five percent. To dampen the impact of this instruction, the banks either need to lend to the private sector to boost their top line or put a cap on their cost.
On the positive front, the expected monetary reversal is likely to be a good omen for the banking instruction. Besides, the imminent IMF programme might provide a breather to unabated government borrowing, paving ways for the banking sector to discover avenues in private sector.
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Selected Performance Indicators
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Indicators 1QCY13 1QCY12
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Infection Ratio 12% 14%
Coverage Ratio 81% 77%
IDR 57% 53%
ADR 50% 51%
CASA 55% 53%
ROA 0.4% 0.5%
ROE 4% 5%
Spread Ratio 45% 51%
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Source: Company Accounts
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Consolidated Profit & Loss Statement of Big 5 Banks
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(Rs mn) 1QCY13 1QCY12 chg
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Markup Earned 102,694 99,432 3%
Markup Expenses 56,518 49,135 15%
Net Markup Income 46,176 50,297 -8%
Provisioning 2,214 1,260 76%
Net Markup Income after provision 43,962 49,037 -10%
Other Income 20,161 17,353 16%
Operating Revenues 64,123 66,390 -3%
Other Expenses 31,804 29,601 7%
Profit Before Taxation 32,798 37,508 -13%
Taxation 10,158 12,738 -20%
Profit After Taxation 22,641 24,770 -9%
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Source: Company Accounts
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