The calendar year 2004 was the second complete year of the United Bank Ltd under the private management as the bank was privatised in 2002 end. During 2004, the bank posted pre-tax profit of Rs 5.01 billion which is 10.79 per cent higher than the pre-tax profit of Rs 4.522 billion earned in 2003.
The post-tax profit of Rs 3.821 billion earned during 2004 is 35.59 percent higher than 2003 post-tax profit amounting to Rs 2.818 billion.
Let us also have a look at the profit position of the bank during 2003 ie the first complete year under the private management in comparison the pre-privatisation calendar year 2002:
It will be seen that the profit position of the bank during the first year of private management (2003) was much better than the second year (2004).
Now let us have a look at various components of the Bank's income during 2004 which are summarised in Table I appended:
It will be seen from the above Table that income from interest on advances grew by 42.55 per cent from Rs 4.444 billion in 2003 to Rs 6.335 billion in 2004 while the advances increased by 52.65 per cent from Rs 95.4 billion in 2003 to Rs 145.629 billion in 2004. The interest rates had started showing an increasing trend in the second half of 2004. However, in the case of this bank, the weighted average lending rate fell slightly by 0.31 per cent from 4.66 per cent in 2003 to 4.35 per cent in 2004 as would be evident from Table II appended:
It is not understood why the lending rates went down in 2004 but this minor change would not have made a major difference in the interest earnings on the advances. What is the cause of concern is that why the interest earnings did not rise in proportion to the quantum of rise in the advances portfolio. Where does the fault lie?
The bank's intermediation cost during 2004 remained almost at previous year's level. But it will be seen from Table II that the weighted average deposit rates fell from 0.92 per cent p.a. in 2003 to merely 0.64 per cent p.a. in 2004. It means that the bank's business is flourishing on the "cost-free deposit base". This exploitation of the depositors of the highest order has been acclaimed with pride by the bank as the President of the bank has admired the building up of low cost deposit base ( please see page 16 of the bank's annual report).
The overall interest income grew merely by 4.23 per cent from Rs 9.269 billion in 2003 to Rs 9.661 billion in 2004. The highest increase is in the income on dealing in foreign currencies ie 53.07 per cent from Rs 471 million in 2003 to Rs 721 million in 2004 even though the amount involved is not very substantial.
There is a sharp rise of 36.02 per cent in the income under the head "other income" from Rs 744 million in 2003 to Rs 1,012 million in 2004.
The Note No 29 to the annual report indicates that out of the total income of Rs 1,012 million under this head, Rs 904 million comprise " charges recovered from customers". This is a very vague explanation and does not disclose the actual nature of income . As the Bank has now become a public limited company by making share offering to the public, its accounts should in future be more vivid.
One of the causes for comparatively lesser profit in 2004 seems to be the reduction in the income on account of dividend income/ gain on sale of investment from Rs 2.059 billion in 2003 to Rs 1.103 billion - a reduction of 46.43 per cent.
In 2003, the banks earned a lot of money in share trading as there was no cap on investment in the listed shares. The Prudential Regulations issued by the State Bank of Pakistan (SBP) in early 2004 require the banks to limit their investment in this field to 20 per cent of their capital and reserves. In 2003, banks also booked a lot of profit by replacing their high yield securities with the low yield ones.
There has been an increase of Rs 354 million in the salaries and allowances expenditure ie from Rs 3,255 million in 2003 to Rs 3,609 million in 2004 as against induction of 391 individuals in 2004. The per capita salary / allowances expenditure thus averages to Rs 32,668 per month.
The quantum of non-performing loans (NPLs) has increased by Rs 1.625 billion from Rs 18.916 billion at end 2003 to Rs 20.541 billion at end 2004. This is despite the fact that the principal amount written off during 2004 aggregates Rs 536.753 million.
It may be added that the unrealised interest kept in the suspense account is not included by the banks in the figures of the NPLs. This amount is Rs 4.955 billion as given in Note 11 to the annual report. If that amount is included, the aggregate of the NPLs will shoot from Rs 20.541 billion to Rs 25.496 billion. As per Note No 10 to the annual report of the bank, the quantum of advances-performing and non-performing as of the 31st December, 2004 is Rs 145.629 billion and Rs 20.541 billion respectively- aggregate Rs 166.17 billion. The NPLs are thus 15.34 per cent of the total advances.
The principal amount of the advances written off during 2004 is Rs 536.753 million. In addition to that, write-offs on account of interest/other financial reliefs provided is Rs 855.704 million. Thus the total impact of write-offs during 2004 aggregates Rs 1.392 billion.
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Year Pre-tax profit post-tax profit
[Figures in billion Rs]
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2002 2.781 1.463
2003 4.522 2.818
Increase: 62.6 percent 92.62 percent
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TABLE I:
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INCOME FROM BANKING SOURCES DURING 2004
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S. [Figures in Rs billion]
No Income/expenditure head 2003 2004 Year over year change
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1. Interest income on advances 4.444 6.335 (+) 42.55 %
2. Interest income under
other heads 4.825 3.326 (-) 31.06 %
3. Total interest income(2+3) 9.269 9.661 (+) 4.23 %
4. Interest expenses
on deposits 1.742 1.511 (-) 13.26 %
5. Interest expenses under
other heads 0.189 0.289 (+) 52.91 %
6. Total interest
expenses (4+5) 1.931 1.800 (-) 6.78 %
7. Net interest income (3-6) 7.338 7.861 (+) 7.13 %
Non-interest income.
8. Commission/fee and
brokerage 1.671 1.891 (+) 13.17 %
9. Income on dealing
in F.C* 0.471 0.721 (+) 53.07 %
10. Other income 0.744 1.012 (+) 36.02%
11. Total non-interest
income 8+9+10 2.886 3.624 (+) 25.57 %
12. Total income from banking
functions (7+11) 10.224 11.485 (+) 12.33 %
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* F.C [Foreign currencies]
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TABLE II:
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S.No Advances/Deposits/Interest 2003 2004 Year over year change
[Figures in Rs billion]
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1 Advances(Performing) 95.400 145.629 (+)52.65 %
2 Interest earned 4.444 6.335 (+)42.55 %
3. Weighted average
lending rate 4.66 % 4.35 % (-) 0.31 %
4 Deposits 189.932 237.054 (+) 24.81 %
5 Interest paid 1.742 1.511 (-) 13.26 %
6 Weighted average
deposit rate 0.92% 0.64 % (-) 0.28 %
7 Bank's intermediation
cost (3-6) 3.74 % 3.71 % (-) 0.03 %
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