Sindh Bank: on a solid footing

From top to bottom, Sindh Bank has plenty of reasons to flatter its stakeholders and its healthy bottom line growth of 62 percent year-on-year in CY14 would definitely not go amiss. Despite being a relatively new lender, its deposits are constantly growing and that too with the general public contributing the major share to banks deposit growth. No wonder then, the provincial lender has won over depositors confidence in a short time span.
In CY14, the surge in its top line is mainly the outcome of Sindh Banks heavy investments in government securities, particularly in PIBs. In view of the yields on PIBs becoming lucrative, Sindh Bank, like most of its peers, shifted its investments from treasury bills to PIBs. With an investment-to-deposit ratio (IDR) of as high as 96 percent, the heavy top line growth is just an obvious payback.
One thing worthy of note is that the bank did not solely depend on easy banking to inflate its financial performance. Unlike the industry, Sindh Bank did not shy away from building up its lending portfolio. In tandem with investments, advances have also gone up though at a relatively slower pace. But given the current industry trends, expansion on the advances front needs to be cherished. Advances grew by a hefty 55 percent in CY14 and as a consequence the advances-to-deposit ratio (ADR) now stands at 67 percent, up from 58 percent in the preceding year.
Banks infection ratio stands at a paltry one percent, owing to its negligible non-performing loans (NPLs). This year, the bank booked a provision expense to the tune of Rs19 million against NPLs versus zero provisioning in the preceding year. With the bank focusing on expanding its advances portfolio, provisioning expenses can be expected to pick up pace in years to come.
Moreover, the banks treasury wing also scored well during the year. Non-mark-up income grew by a healthy 11 percent year-on-year led by fee commission and brokerage income, income from dealing in foreign securities and gain on sale of securities.
With the bank aggressively increasing its branch network, administrative expenses have also magnified. Yet the bank has managed to portray strong bottom line growth. As of now, the bank has 225 branches in the country (including five Islamic banking branches), while it plans to add another 25 branches to its tally in CY15.
In view of interest rates sliding further, the PIB charm is likely to fade soon. In the meanwhile, healthy revaluation gains on PIB holdings will continue to please banks top line growth while faring well for its spreads. Sooner or later, the investment mix is likely to change its direction in favour of advances. But cautious lending approach will be the key here.

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Sindh Bank (Unconsolidated P&L)

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Rs (mn)                         CY14      CY13      Chg

Markup Earned                  8,932     6,329      41%

Markup Expenses              (5,497)   (4,072)      35%

Net Markup Income              3,435     2,257      52%

Provisioning against

NPLs and advances               (19)         0        -

Net Markup Income

after provisions               3,416     2,240      53%

Non Mark-up/Interest Income      956       860      11%

Total income                   4,372     3,100      41%

Non Mark-up/Interest Expenses (2,761)   (2,146)     29%

Profit Before Taxation         1,611       954      69%

Taxation                       (532)     (287)      85%

Profit After Taxation          1,079       667      62%

EPS (Rs.)                       1.08     0.67

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