Pakistani banks believe in Pakistan like none other. The bond they have with investing in sovereign papers, is reaping results. The bond they have is the Pakistan Investment Bond (PIB) and that is what did wonders for most banks, big or small, in CY14. UBL was no different. Being a larger sized bank, it did not shy away from investing heavily in PIBs, which for most part of the year, yielded lucrative risk-free returns of 12.5 percent.
UBL still lends a fair bit of sum to the private sector, as its ADR as at September 30, 2014 stood at a respectable 49 percent, much higher than similar sized peers, most of whom are hovering in the early 40s. But the top line trick was played by investments, which may not have grown exponentially, but it was the shift from short-term treasury bills to PIBs that made a significant difference. Bulk of UBLs interest income continues to be driven from investments. Equity investments also contributed to the profitability.
Despite continued margin compression resulting from changes in cost of saving deposits, UBL managed a healthy gross spread. Part of it was due to increased asset yields as the asset composition shifted towards the PIBs. And part of it was possible due to UBLs relentless efforts to improve the deposit mix. UBL has been adding deposits at a steady pace, with more focus on current deposits. The cost of deposits was kept well in check, resulting in better gross spreads.
The loan book has also been on the mend, with infection ratio going down by 1 percentage point, and adequately provided for. The ever reliable hand from non-core income continued its support as UBL further strengthened income from its Omni operations - which is now pure gravy. The banks leadership status in remittances also continues to grow whereas bancassurance led income also kept coming.
The cost to income ratio is well in control, CASA improving, NPLs going down - almost everything you can ask for. But CY15 may not be as merciful as soft commodity prices, will surely play a role in lowering non-core income. Moreover, UBL and others will have to alter the asset mix strategy. PIBs and treasury bills will no more be sufficient, unless of course complacency sets in. UBL also needs to retain some of its top managers in order to maintain healthy growth.
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United Bank Limited (Consolidated P&L)
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Rs (mn) CY14 CY13 chg
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Markup Earned 85,761 75,709 13%
Markup Expenses 38,847 36,200 7%
Net Markup Income 46,914 39,509 19%
Provisioning/(Reversal) 1,336 1,594 -16%
Net Markup Income after provisions 45,577 37,915 20%
Non Mark-up/Interest Income 21,356 19,416 10%
Operating Revenues 66,934 57,331 17%
Non Mark-up/Interest Expenses 32,712 29,649 10%
Profit Before Taxation 35,616 28,965 23%
Taxation 11,592 9,234 26%
Profit After Taxation 24,025 19,731 22%
EPS (Rs) 19.32 15.75
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Source: KSE Notice
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