A cursory look at Standard Chartered Bank (Pakistan) Limiteds (SCB) 1HCY15 income statement says the bank did well enough to report a modest increase in profits. A closer look tells the bank has further improved its cost control and deposit mix, in a time when spreads are thin and yields on investments have shrunk. A year-on-year comparison with after-tax profits does not show the correct picture either - the 17 percent rise in pre-tax income is rather more comparable.
The top line grew modestly - -reflecting the prevailing low interest rates. SCBs IDR has stayed in the high 60s, with advances growing at a slower pace. The shift within investments from highly lucrative PIBs to more modest treasury bills also meant a flattish top line growth - especially when the balance sheet is not exactly expanding at the rate of knots.
What makes the SCB stand out from the crowd is its exemplary deposit mix, which happens to be the best in the industry. The CASA ratio has stood as high as 92 percent by the end of 1QCY15. While the latest numbers are not known yet, the improvement in NIMs signals a further improvement in deposit mix.
Add to that the cost/income ratio, prudence and an exemplary control on administrative expenses - and you would really be doing pretty bad to not make good profits from there.
The banks NPLs are although well provided for, have stayed on a slightly higher side, which shows in the form of higher provisioning expenses during the period. SCB would do well to trim the NPLs down the line.
To compliment the core operations, the non-mark-up income was ever present. Although, it did not rise exponentially unlike many peers, but was substantial enough to aid the bottom line grow by as much as it did.
Shying away from aggressive lending has so far worked for most banks, but as investments continue becoming less lucrative and spreads squeeze further, something will have to give. Cost control and deposit rationalization will always be crucial to profits, but the impetus will have to come from the top. Time will tell if SCB is ready to alter the asset mix strategy.
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