Mid-tier banks in CY13

Mid-tier banks comprising of Bank Alfalah, Bank Al Habib, Bank of Punjab, Askari Bank and Standard Chartered closed CY13 on a fragile note. Besides weak top line, what marred the cumulative bottom line of mid-sized banks was high provisioning charge, the credit to which primarily goes to AKBL which passing through a turnaround process under the management of Fauji group.
Not to blame the mid-tier banks, dicey top line was an industry-wide scenario. The cumulative top line of the five banks succumbed to the low discount rate and witnessed a drop of seven percent year on year. While all the five banks endured a top line slide, AKBL followed by BAHL were the key benefactors that saw the highest year-on-year dip of 14 percent and 10 percent in their respective top lines.
To combat the effect of subdued top line growth, the mid-tier banks focused on improving their deposit profile with a bias towards current accounts. BoP deserves a pat on the back for boasting the highest year-on-year growth of 27 percent in current accounts which could be the reason why its Net Interest Margin (NIM) registered a marvellous growth of 88 percent year on year despite healthy deposit growth and amid its similar-sized peers witnessed a drop in their NIMs. However, proportionally, BAHL and SCB have the highest proportion of current accounts, i.e. over 42 percent.
As of CY13, SCB has the healthiest spread ratio of 60 percent among the similar-sized banks having an average spread ratio of 37 percent. BoP, although registered the highest growth in its NIM but its spread ratio is still the lowest among its peers, i.e. 17 percent.
Except for AKBL which Non-Performing Loans (NPLs) grew by 25 percent year on year in CY13, the asset quality of other four banks significantly improved during CY13. BAFL took the lead here with the highest year-on-year drop of 41 percent in the NPLs in CY13. In terms of infection ratio, BAHL stands out with two percent infection ratio followed by BAFL (five percent). BoP shows the filthiest asset portfolio with infection ratio of 38 percent in CY13.
BAHL appears to be the most prudent of all the similar sized banks as it has created buffer provisions despite having the lowest infection ratio. The provisions created by the bank can cover its NPLs by over 1.6 times.
Growing NPLs led AKBL to book exorbitantly high provisioning expense booked by AKBL in CY13 increased the cumulative charge of the mid-tier banks by 15 percent year on year and turned to be a bane for the cumulative bottom line of the mid-tier banks which ended up sliding by 11 percent year on year. While the aggressive strategy of not recognizing the value of collaterals wreaked havoc on AKBLs bottom line, it will result in long-term sustainable growth for the bank.
In terms of non-mark-up income BAHL took the lead with a tremendous 33 percent year-on-year growth coming on the heels of sales of investments, fee-based income and foreign currency income. AKBL faltered on this front too with a 13 percent year-on-year drop in the non-mark-up income.
On the stock exchange, SCB stood out its peers by outperforming KSE-100 by a good margin.
All in all, CY13 gave a set of lessons to each bank which if focused on religiously would yield better performance in CY14.
For BAFL, the area to focus on is its NIM which was badly hampered in CY13. For BAHL, a better asset-mix which is currently tilted in favour of investments may propel the bottom line. SCB needs to work on its non-core areas to create a protective shield around the bottom line. BoP and AKBL, blotted by high NPLs, are in the recovery phases and would need time to improve their fundamentals.

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Mid-tier (ranked 6 to 11) Banks

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(Rs mn)                                   CY13        CY12         Chg

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Markup Earned                          164,896     176,829         -7%

Markup Expenses                        102,320     111,440         -8%

Net Markup Income                       62,576      65,389         -4%

Provisioning/(Reversal)                 10,969       9,547         15%

Net Markup Income after provisions      51,607      55,842         -8%

Non Mark-up/Interest Income             25,438      25,047          2%

Operating Revenues                      77,046      80,889         -5%

Non Mark-up/Interest Expenses           51,727      52,646         -2%

Profit Before Taxation                  25,343      28,272        -10%

Taxation                                 8,276       9,174        -10%

Profit After Taxation                   17,067      19,098        -11%

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Performance Indicators of Mid-tier Banks

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                                          CY13        CY12

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ADR                                        48%         50%

IDR                                        48%         52%

CASA                                       72%         71%

Infection Ratio                            16%         18%

Coverage Ratio                             68%         60%

Spread ratio                               38%         37%

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