Smooth sailing for UBL

When your deposit base is growing in double digits and the mark-up you end up spending stays flat, you are surely in for a pretty good time. UBL in its 1HCY15 financial results has managed just that and much more. The strong 40 percent year-on-year pretax profit growth is well complimented by an interim dividend of Rs3/share.
The strength stemmed from the top as balance sheet expansion and smart asset mix strategy continued yielding good results. That the bulk of mark-up income is driven from investment in government securities is a norm in the industry these days - UBLs ADR in the mid 40s hence comes as little surprise. Registering impressive topline numbers despite a declining interest rate scenario, squeezed spreads and a vigilant central bank, surely is no mean feat.
PIBs still continue to form the major chunk of investments, although that trend is all set to start shifting towards treasury bills as holding on to PIBs won be as lucrative. The gross spreads continue to improve - a testament to UBLs focus on improve CASA ratio. The average deposit cost has considerably declined as most banks are keen on rationalizing the deposit mix, instead of altering the asset side.
The non funded income - an ever reliant contributor did not disappoint either, as dividend income and gain on sale of securities provided healthy support to the bottomline. The administrative cost were kept in check too, evident from the improved cost to income ratio. The only blip in an otherwise spotless statement was an increase in provision charges, which more than doubled during the period. Detailed accounts would provide a better insight regarding that.
Given UBLs infection ratio, which is in double digits although well provided for, a sudden shift towards aggressive lending may still be far away. For now, most banks seem content on rationalizing the deposit base. With super tax and other budgetary measures to come in play, playing safe may again be the mantra for the industry going forward.

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United Bank Limited (Unconsolidated P&L)

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Rs (mn)                              1HCY15       1HCY14       chg

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Markup Earned                        46,417       40,295       15%

Markup Expensed                      19,131       19,133        0%

Net Markup Income                    27,287       21,162       29%

Provisioning/(Reversal)               2,004          997      101%

Net Markup Income after provisions   25,283       20,165       25%

Non Mark-up / Interest Income        12,389       10,040       23%

Operating Revenues                   37,672       30,205       25%

Non Mark-up/Interest Expenses        15,537       14,357        8%

Profit Before Taxation               22,134       15,848       40%

Taxation                              9,412        5,316       77%

Profit After Taxation                12,722       10,532       21%

EPS (Rs)                              10.39         8.60

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Source: KSE Notice