Bank: -NIB BANK LIMITED - Analysis of Financial Statements Financial Year 2003 - H 2001 2008
NIB Bank Limited (formerly NDLC-IFIC Bank Limited) is a scheduled commercial bank and is principally engaged in the business of banking as defined in the Banking Ordinance, 1962. It was incorporated in March 2003 as a public listed company. Currently, it is listed on all the three stock exchanges of Pakistan.
In June 2005, Temasek Holdings of Singapore, through its indirect subsidiary Bugis Investments (Mauritius) Pte. Limited, acquired over 70% shares in the capital of NIB Bank. Temasek, the investment arm of the Government of Singapore, is a premier international investor in the process of establishing a pan-Asian banking presence.
The investment in NIB Bank is its first investment in Pakistan and in terms of amount it is the largest non-privatization investment by any foreign investor in a bank incorporated in Pakistan. This foreign investment also showcases the confidence of foreign interest in Pakistan's banking sector and will greatly improve not only the image and performance of NIB Bank but also Pakistan's investment profile.
The bank is listed on all stock exchanges of Pakistan and has presently a countrywide network of 240 branches (2006: 41 branches). Rated by PACRA "A+" in Long-term and "A1" in short term with a positive outlook.
On December 31st, following the approval from SBP, NIB successfully merged with Pakistan Industrial Credit & Investment Corporation ltd. (PICIC) and PICIC Commercial Bank ltd. (PCBL). With total assets swelling up to Rs 176.7Bn, advances to Rs 82.2Bn and deposits to an amount of Rs 116.7Bn the merger resulted in formation the seventh largest commercial bank in the country in terms of distribution network.
After the merger the bank has dedicated different branches for special segments of the market such as out of 240 branches , 100 branches are aimed at serving small businesses, 35 branches for serving middle and upper tier SME business and 105 branches focused on the retail banking. During the first six months of merger the bank has mainly focused on technological improvements, integration of different systems, development of human capital and the purchase of different banking soft wares. The merger as helped the bank to move up the ladder and become one of the top 10 banks of Pakistan and also improve the long-term credit rating by PACRA to "AA-' and short term to "A1+"
Banking Industry H1'08
The banking industry in FY08 experienced a fall in profitability. The banking spread for outstanding deposits which stood at 7.35% during June-07 declined to 6.78% during June-08. As on 30th June 2008, the Non-performing loans of all banks stood at Rs 241.33 billion.
This amounts to Net NPL to Net Loans ratio of 1.14 as against 1.18 on 31st March 2008. During 2Q-CY08 the banks provided provisioning of Rs 6.3 billion while it stood at Rs 24.7 billion for the 1Q-CY08. The deposit rates have increase by only 6.3% at versus 13.4% for the same period last year. The gross advances increased by 9.4% to mark Rs 2.9 trillion. Investments have declined by 14.9% to mark Rs 1.03 trillion.
NIB's Recent Financial Performance (H1 FY'08):
In the Half year ending June FY08, the bank realized an income of Rs 659Mn which is a 541% growth over the same period last year, mainly due to lower base effect and also the impact of deferred taxation of Rs 452 million. PBT witnessed an increase of merely 5%, due to increased provisioning plus higher administrative charges.
Both contributed towards wiping off the breathtaking increases in mark-up and non-mark-up income. SNIB alone reported a Profit after tax of Rs 659 mn and a profit before tax of Rs 207 mn. On a consolidated basis, for the half year ended June 30, 2008, NIB reported a loss after tax of Rs 269 mn.
This is not, in any way, reflective of a deterioration in the core business of NIB. The loss in consolidated accounts is due to the elimination of dividends received by NIB from its subsidiaries and affiliates (as required by accounting rules for consolidated accounts) and the erosion in market value of its investments in its associated closed-end equity based funds caused by a drop in equity markets.
NIB being no exception with its NPLs/Advances standing at 17.6% for the period ending June FY08, surpassed the industry average of 8%. The high NPL ratio cannot be attributable to NIBs standalone performance as the bank recently had acquired PICIC thereby, inheriting large NPL amounts. This is evident from NPLs/Advances at 11.27% in SPLY. Nevertheless, PAT increase can be attributed to the benefit of deferred tax which is almost Rs 451mn.
The merger and standalone growth led to 148% increase in Net Mark -up income. For this quarter the Mark Up earned was 7% higher than 1Q FY08 as a result of loan growth and improved loan and treasury yield whereas the markup expenses also fell by 5% as compared to Q1'08 due to bank to attracting lower cost funds.
Moreover, the Net Mark up income grew by phenomenal 37% from Rs 1bn (Q1 FY08) to Rs 1.4Bn (Q2 FY08). The Non-markup income also showed an increase of 47% on a QoQ basis, while on h1'08 V/S H1'07 basis the increase was 495%.
This is mainly due to a significant increase of 65% in earnings from fees, commission and Forex dealing followed by increases in dividend income (30%), and gain on sale of securities. sales of equity securities and a 65% increase in earnings from fees, commission and FX dealing.
The main source of dividend income was from PICIC AMC and its funds which was 48% of the total non mark-up income in 1H 2008. This is not recurring considering the bearish stock market situation. The administrative costs swelled up to Rs 2.7 bn in H1FY08 over Rs 908Mn in H1FY08, on the back of significant investments on human capital development, software updates and consolidation, amortization of intangibles.
============================================================================
Financial Highlights - NIB Rs '000
============================================================================
H1 '08 H1 '07 Chg (Rs) Chg (%)
----------------------------------------------------------------------------
Interest earned 7,148,569 2,839,338 4,309,231 152%
Interest expensed 4,750,228 1,871,891 2,878,337 154%
Net interest income 2,398,341 967,447 1,430,894 148%
Provision against NPLs 1,120,695 144,714 975,981 674%
Total Provisions 1,133,729 144,714 989,015 683%
Net interest income
after profit 1,264,612 822,733 441,879 54%
Total non-interest income 1,704,824 286,261 1,418,563 496%
Total non-interest expenses 2,762,364 911,348 1,851,016 203%
PBT 207,072 197,646 9,426 5%
Taxation 451,788 -94,899 546,687 -576%
PAT 658,860 102,747 556,113 541%
Basic/Diluted EPS 0.23 0.18 0.1 28%
----------------------------------------------------------------------------
H1 '08 Dec '07 Chg (Rs) Chg (%)
----------------------------------------------------------------------------
Deposits 112,804,923 116,671,219 -3,866,296 -3%
Advances 85,428,603 81,932,379 3,496,224 4%
Investments 31,991,423 40,439,935 -8,448,512 -21%
ADR 0.76 0.70 - -
NPLs 15,035,413 13,252,316 1,783,097 13%
NPLs/Advances 17.60% 16.17% - -
============================================================================
On the balance sheet front NIB didn't show any increase since the end of FY07. On the balance sheet front it didn't show any increase since the end of FY07. The total assets grew by a plain 1% to Rs 178Bn from Rs 176Bn (December FY07). The two major reasons for this stunted growth were firstly, a Rs 8Bn (21%) decrease in Investments and secondly very small growth in Advances of nearly 4% in the first half of FY08.
The advances composition was also deliberately changed so as to be in line with strategy of higher yielding loans. The portfolio now comprised of Corporate business declining to 29% from 33% in DecFY07, consumer and SME contributing to 53 % from 49% December FY07, thus showing a diversification to lucrative, high margin segments. The Earning assets of NIB were 70 % of the total Assets which were somewhat near the industry average 76%.
The above average ADR ratio at 76% was due to offloading of expensive deposits of around Rs 10Bn, shifting the overall deposit mix in favour of the low-cost current accounts (being 23% in Jun'08 from 18 % Dec'07).
These measures helped to reduce the cost of deposits by 27bps in the wake of industry wide rising fund costs. The deposits shrunk by 3% which is Rs 3.87Bn. On the equity front the Bank made a massive loss on surplus on revaluations of securities which stood at Rs 597Mn. This is a trickle-down effect of current slow economic activity and bearish stock markets.
Financial Performance (FY '03 - FY '07)NIB bank's balance sheet size grew from Rs 46.4bn in December 2006 to Rs 176.65bn in December 2007. This phenomenal increase is mainly attributed to the successful acquisition of PICIC. To finance this merger one of the biggest rights offerings were made in history totaling to Rs 18.2bn accompanied by some 641mn shares to the share holders of PICIC and of PCBL. Through this acquisition, the Bank acquired control of PICIC, PICB and PICIC Asset Management Company. At the date, this 28.4bn was the second highest paid-up capital amount among all banks in Pakistan.
Over the years assets have shown a positive growth with a landmark increase of 281% in FY'07 to Rs 176.65bn. This total Assets growth is backed by investments, advances and operating fixed assets. Investments rose to 40.5bn showing an increase of 517% during the year. Major investments of Rs 19bn took place in Market t-bills accompanied by Ordinary shares, Modaraba certificates and TFCs.
Total Advances increased by 165% in the period 2007 to an amount of Rs 82.16bn.The advances compose of 70% high yielding commercial and consumer loans as well as SME loans. It is important to notice that in FY'07 the advances to textile reduced to 28% from 35% (FY'06) this is due to unsatisfactory performance of textile sector. On the other hand, advances to sugar industry and wholesale and retailers increased to 5% (1.21% FY '06) and 9% (4.7% FY '06) respectively.
This trend reflects the Bank's stated strategy to grow and generate higher returns from diversified assets utilization. Operating fixed assets augmented by almost 50 folds to Rs 30.8bn. This exceptional growth is due to newly created intangible asset (Goodwill) of Rs 26.77bn. Similarly, property and equipment rose by Rs 2.8bn thus adding to total amount of operating assets.
Deposits have continued to grow impressively to Rs 116.67bn, almost 281% magnification over Rs 30.55bn in FY '06. Through focused marketing efforts in selected segments, NIB is increasing its proportion of current & savings accounts to total deposits 21% and 31% respectively in FY '07 as compared to 11.5% and 20.6% in FY '06.
In FY'07 Fixed deposits were 43% whereas they were 60% in FY'06 this resulted in less reliance on Fixed deposits as they are an expensive source of finance. Moreover, the bank is reducing its average deposit size, thereby developing a more low cost and stable deposit base. This positive change has so far improved the liquidity profile of the Bank.
ADR has improved significantly over the years, in the period under consideration the ADR was 77% signifying substantial room to increase advances without taking on expensive deposits. This might be helpful for bank if wants to expand into different markets. The industry ADR was 68% which means that NIB was in a better position to lend money than the competing banks in industry.
The cost of funding earning assets was high in FY '06 as the bank depended upon fixed deposits (60% of total deposits) but later this cost reduced as the share of Fixed assets reduced to 43% of total deposits in FY'07. Earning assets to total assets reduced to 25% in year FY '07 because the operating assets took a quantum leap thus contributed more to the total assets.
In order to maximize its post merger capital structure the bank financed the acquisition through a combination of rights issue and commercial debt. The bank also had to borrow to bridge finance the funding gap limiting up to Rs 7.1bn for the period ended December '07. This funding cost added to the borrowings from financial institutions and hence to the Total liabilities.
The total loss of the Bank was reported to be was Rs (350)mn in FY'07. Although the aforementioned numbers are showing a very promising performance of the bank but a 350mn loss occurred due to change in the policy of SBP. In October 2007, according to SBPs regulation, the banks were deprived of the benefit of deducting the value of collateral thus the provisions against Non-performing loans swelled up to multiple times as the FSV benefit was missing.
Consequently, the banking industry at large suffered losses in the last quarter of FY'07. If the FSV benefit had been intact the profit after tax would have been soared up to Rs 217mn. Therefore, the losses do not reflect any inherent weakness in profit generating capability of the bank.
The asset quality is not pleasing with NPLs/ Advances rising from 3.3% to 16.13%. Provisioning expense is higher than in the same period last year due to a growth in volumes of loans and advances as well as FSV removal and slower collections in some products.
Collections are expected to come back on target in subsequent months. The Bank is continuing to invest heavily in understanding, designing and delivering customer-centric business models for each of the Commercial, SME and Consumer segments. Total non-Interest income stood at Rs 598mn which is 21% than last year.
But this increase is offset by a 64% increase in Non-interest expenses. Non-interest expenses rose more than proportionate due to the administrative costs of take over and conversion of branches. But conversion effort costs have a positive future outlook so it is not much of a problem.
Taking a look at earnings ratios all of them has shown a falling trend mainly due to the fact that the growth in equity and assets is not matched by profitability. This is apparent in the graph given below: Over the years the ROE has not been satisfactory as they are merely around 3% while the industry observed a ROE of 23%. This is not favorable to an investor.
Other ratio like ROA of the industry was 2%. This shows that NIB needs to better utilize its assets. The debt management ratios were on slide. The total debt increased by 237% but it was matched by assets growth of 281% therefore the Debt to Asset ratio did not show any significant change. Similarly, the equity grew by a record breaking of 555% (rights issue of 18.6bn) hence the debt to equity fell to almost half.
A significant increase in investments as a share of earning assets can be seen in FY '07. Advances have increased by 165% over the same period but it was less than proportionate while the investments increased by 517% which contributed more to the total of Earning Assets.
NIB Bank continued its strong growth momentum in 2006 both in terms of volumes as well as top line revenue. Total assets increased by Rs 14,410 mn to Rs 46,429 mn in December 2006 and total revenues increased by 82% reaching Rs 1,515 mn in 2006. Gross mark up earned doubled from Rs 1,717 mn to Rs 3,499 mn between 2005 and 2006 and net mark up earned grew 75% in the same period.
The addition of new customers and incremental business from existing customers allowed non mark up income to increase 98% from Rs 236 mn to Rs 468 mn. By effectively cross selling trade related products, foreign exchange volumes at USD 1,012 mn in 2006 showed a 59% increase over 2005 as well as better profitability per unit of foreign currency.
The strong revenue growth highlighted above was supported by expanding its fully on-line branch network from 27 to 41 in December 2006 in 14 cities and by installing 23 ATMs during the year. This rapid expansion of their franchise supported revenue growth as well as strengthened its risk management and other support functions.
As a result of this expansion, operating costs increased to Rs 1,224mn in 2006 from Rs 713mn in 2005. Despite the substantial increase in operating costs, the cost to revenue ratio reduced to 81% in 2006 from 85% in 2005. The cost to revenue is consistent with its business plan and reasonable for a Bank which is in its development stage.
In mid 2006, your Bank launched a very successful Personal Installment Loan product. The monthly disbursals of this product were higher than those of other banks that have been selling this product for some years. The collection experience to date on such loans has also been better than the expectations.
The Prudential Regulations require a 5% general provisioning against the total outstanding balance on such loans at the year end. This being the first year, the regulatory requirement has generated a non tax deductible provision charge of Rs 194mn in the 2006 profit and loss account of the Bank. t is important to highlight that this charge acts as a reserve and is not an actual provision related to specific loans going bad.
Despite the general provisioning explained above, profit after tax showed an increase in 2006, primarily as a result of tax credits related to the acquisition of Credit Agricole Pakistan. Operating profit before provisions increased by 154% over 2005 to reach Rs 300mn in 2006.
For NIB, the return on assets trend is increasing uptil 2004, but fell in 2005 and recovered in 2006. The reason for this can be attributed to the declining profit after tax mainly due a high provision for NPLs.
ROD of NIB, indicating the return that the bank is receiving from its deposits, is higher than the ROA but follows a trend similar it, solely due to the smaller amount of deposits that the bank has compared to its assets base as the numerator is same for both the ratios. It has been increasing till '05. This rise is due to the bank's better profitability as it becomes a major player in the financial market. However, like ROA it nose-dived in '05 for owing to declining profit after tax but recovered in 2006 due to increase in 2006 PAT.
Around 99 % deposits are from the customers while the remaining 1% is from the financial institutions. Also 92% is in local currency while 8% is in foreign currency. The sectorial analysis of deposits further revealed that 40% deposits are held by individuals and 11 and 10 % from financial and non-profit organizations (trusts) respectively. The share of other sectors is very minimal ranging from 6%( Transport, Storage and Communication) to 0.03% (sugar).
The trend for ROE is similar to that of ROA with a rapid increase from 2001 to 2002, as the bank was relatively newer in 2001 but by 2002 it started solidifying its customer base, thus leading to a rise in revenues and profits, becoming a boon to investors, This is proven by the calculation of the percentage increase in profits by 72.07% in this one year time frame.
Whilst the bank was not issuing a great number of shares, hence the ratio kept rising till 2004 after which it fell in 2005. This is explained by a rise in profits being less than the rise in equity. The ratio recovered again in 2006 on the account of improved profit after tax in '06.
The asset quality of the bank has declined 2003 onwards as the NPLs and provisions rose sharply as a % of the total advances and NPLs respectively. The Bank's NPL as a percentage of gross advances reduced slightly from 3.46% in 2005 to 3.21% in 2006. Improved collection efforts led to provision reversals of Rs 74 mn, plus recoveries against written-off loans of Rs 12.5 mn in 2006. However, mainly due to regulatory requirements, provisioning against loans and advances increased by Rs 179 mn. The overall asset quality is considered acceptable in the light of the current competitive scenario.
Collections are expected to come back on target in subsequent months. The Bank is continuing to invest heavily in understanding, designing and delivering customer-centric business models for each of the Commercial, SME and Consumer segments. These unique business models, will provide superior service, faster turnaround time and above all, will help it in building lasting relationships with its customers.
Sectoral analysis of advances revealed that around 35% of loans were given to the textiles sector, 6% for export/import purposes and the 20% to the individuals. The share of other sectors is lower than these. However, as some doubtful loans have the tendency to stay under cover for sometime due to different reasons, a prudent policy for NIB Bank would be that the management remains extra vigilant in the appraisal and monitoring of all loans.
Recently, SBP proposed 100% cash provisioning for non performing loans (NPLs). This is likely to decrease banks' profitability by 40%. Like all other banks, PICB's asset quality is also likely to further deteriorate, if it doesn't increase its advances considerably.
Trend for Advances to Deposits ratio (ADR), a key indicator of how liquid the bank's assets are, show that it has been fluctuating. While the ratio fell after 2003, it recovered in 2004, thus slighty rising till FY '06. The reason for its initial decline was the rise in deposits not being offset by an equal or greater rise in advances. The slight growth in average advances (62%) in 2005 was much higher than the growth in average deposits 60% in the same period, leading to a rise in the ADR then onwards.
In 2006 as well, average advances rose by 23% which was not matched by deposits that rose by a lower 15%, thus setting the stage for another increase in the ratio. Although the loan to deposit ratio appears to be high from the B/S figures it is at an acceptable level when export refinance and lease key money adjustments are made.
Earning assets to Assets simply calculates that what proportion of the assets held by the bank is actually helping to generate revenue for it. The earning assets of NIB are lending to financial institutions, investments, and advances. These three assets help generate income for the bank.
The trend as shown by the graph is similar to ADR trend that shows a comparatively higher ratio in 2003, and there was a decline then onwards which can be explained by an increase in the total assets which are not offset by an equal or greater increase in the earning assets. Therefore that particular increase in assets can be explained by an increase in bank's cash balances, balances with other banks, again liquid, and the increase in operating fixed and other assets.
This is not a good sign for NIB as it means that it has money tied up in assets which are more or less "idle" as they are not helping it in generating income which is the ultimate motive of any profit driven enterprise. However, it remained stagnant 2004 onwards as well as in FY '06 due same proportionate increase in assets and earning assets, thereby maintaining the same ratio as in the same period last year.
The tend lines for both the yield on earning assets and cost of funding them, depict a rising trend till and continued to rise sharply after 2005 till 2006. The reason for this trend can certainly be the fact that the interest rates were comparatively low till 2004, but show a sharp rise 2005 onwards after the tight monetary stance by SBP. Also NIB was investing in low interest bearing options initially but later changed its stance.
Given its relatively young age, the Bank initially did not have access to a large pool of low cost deposits. Consequently, the advances growth was financed through new deposits which, under tight monetary conditions and intense market competition, came at a premium, thereby increasing the cost of funds.
Despite this, it managed to improve its net interest spread by 53 basis points between 2005 and 2006 by improving the yield on advances and increasing the proportion of current accounts in the deposit portfolio. By improving the lending composition towards higher yielding products sold to commercial and consumer customer segments, the yield on interest earning assets improved by 198 basis points between 2005 and 2006.
Through focused marketing efforts in selected segments, NIB is increasing its proportion of current/ savings accounts to total deposits as well as reducing its average deposit size, thereby developing a more low cost and stable deposit base. This positive change has so far improved the liquidity profile of the Bank.
The solvency ratios are even stricter measure of the liquidity of a bank's assets. Equity to assets indicates the use of equity in financing the bank's assets. This ratio has seen an overall decline 2003 onwards. A slight decline in the ratio in FY'06 can be attributed to a higher increase in NIB's assets base than its equity base reflecting its rapid growth strategy.
The increase in Total Assets has been managed largely through additional Deposits. Growth in Total Assets has not been achieved through corresponding increase in Equity, which as a percentage of Total Assets has reduced to 9.4% (December 31, 2005: 11%). Of the total, NIB Bank has 78% Investments in Available-for-Sale Securities while 23% are in Held-to-Maturity Securities.
Equity to deposits ratio further contrasts two modes of financing. While equity is an entire category, deposits are a very important section of liabilities for a bank since the finance for a banks operations as well as investing activities comes primarily from deposits. The trend is similar to that of Equity to assets. The ratio fell 2003 onwards. This depicts that the use of equity for financing is tapering compared to the use of borrowings, deposits and other funds like NAFA funds.
This is a good sign for the bank as it may mean less volatile earning payments. However, it may increase bank's borrowing costs. The declining trend on the account of higher proportionate increase in deposits than in equity base, shows that like all the other banks, NIB is also attracting larger deposits from its customers.
Earning Assets to Deposits ratio shows a contrast between the bank's reliance on earning assets over deposits with respect to revenue generation. As we can observe in the graph, this ratio has declined after 2003 but has been been on a slight rise after that.
The initial decline may be explained through the fact that as the bank grows in size and operations, it attracts a greater deposit base; hence the rise in deposits is much greater than average earnings assets. In later years (after 2004) average earning assets and deposits both are increasing however, the rise in deposits is being offset by a slightly higher increase in earning assets (mainly due to higher investments and advances).
Debt management ratios are important to calculate for any bank as they are an indicator of the extent to which the bank is using debt financing or financial leverage. And it helps the bank gauge if it is in trouble and whether or not it should reduce its reliance on debt in the near future.
The picture of NIB in this regard is quite alarming as around 90% of assets in all 4 periods have been financed using liabilities. This may be dangerous for the bank as its risk of liquidation is higher than it can ever be. The creditors can call their funding or withdraw them whenever they want and in that case of liquidation, the bank can quite easily go bankrupt.
The trend is more or less constant, with the percentage lingering between 86 and 91 percent throughout the range. NIB should try and reduce its reliance on debt for future periods and instead try to raise finance through issuance of shares.
Debt to equity ratio measures the reliance of the bank upon the funds invested by the owners as compared to the reliance of the bank on liabilities for raising capital. A high ratio would indicate liability reliance surpassing equity reliance and vice versa. The ratio is above 4 in all cases which obviously means that liabilities are a major source of finance as compared to share capital. The trend shows that the ratio steadily increased from 2003 through 2005, owing to the rise in liabilities being much more than the rise in equity, but later declined considerably due to a comparatively greater increase in assets than liabilities.
This trend is further confirm by the Deposit times capital ratio showing that increase in debts is mainly due to a rise in deposits of NIB. According to the notes to the financial statements, Capital Adequacy Ratio of the bank works out to 11.61% as on December 31, 2006 (2005: 17.42%) as against prescribed minimum equivalent to 8% of the risk weighted assets of the banking company.
Among the market value ratios of NIB, the market to book ratio continued to show an erratic trend on the account of fluctuating market prices compared with very modest increases in BV. However, this ratio declined in '06 owing to the rise in BV/share (mainly due to a rise in unappropriated profits) coupled with the decline in market price from 29.7 to 24.
The P/E multiple of NIB, that also shows an erratic trend remained flat in '06 despite the fall in market price. This is due to a much lower EPS in '06. No dividend payments are made by NIB as its pursuing a rapid growth policy and its retaining all of its profits for its expansion program.
BUDGETARY IMPACTNSS rates have been increased by 2% and will be reviewed every three months. This will intensify the competition foe banks as they will have to offer better deposit rates in order to get hands on contracting liquidity. This will not directly affect the banks as the given government paper and saving schemes are not marketed. 0.1% increase in withholding tax.
Withholding tax (WHT) on cash withdrawal has been increased by 0.1% to 0.3% on cash withdrawals of over PKR25,000.The change is insignificant in a sense that it'll be passed on to customers and hence the profitability of banks is safe. FED on banking services has been increased to 10% and will be passed on to consumers. With demand being inelastic, profitability should remain unaffected.
Future OutlookWith the local as well as global economic slowdown the banking spreads are likely to shrink in near future. Domestically to address the inflationary pressures, the State Bank of Pakistan (SBP) has taken measures such as increase in discount rate to 12% by a cumulative increase of 350 bps the beginning from FY-08 and Cash Reserve Ratio (CRR) and Statutory Liquidity Requirement (SLR) for banks have also been increased to 9% and 19% (previously 7% and 18%) respectively.
The minimum return for depositors on PLS accounts was revised to 5% per annum and NSS rates upwards by 200 bps. These steps have squeezed the banking spread, profitability, liquidity and business in the country, hampering all economic activities. Higher borrowing costs have reduced consumer and business loans, while higher inflation has reduced saving power of individuals thus disturbed banking sector performance.
Even though NIB bank has a stronger base following the acquisition of PICIC, it should also take into consideration the recent MCR and CAR increases by SBP. With every passing quarter the banking regulations are tightened leading to more standardized system, on par with global banking systems thus giving rise to mergers and acquisitions and further investments into this sector in the form of FDIs.
============================================================================================================
N.I.B. BANK LTD. - FINANCIALS BALANCE SHEET
============================================================================================================
ASSETS 2003 2004 2005 2006 2007
------------------------------------------------------------------------------------------------------------
Cash and balances with treasury banks 330,953 974,659 2,085,141 2,928,404 10,318,722
Balances with other banks 17,334 309,218 1,966,118 1,362,497 1,401,796
Lending to financial Institutions 347,579 1,812,907 2,270,000 2,600,000 4,753,113
Investments 951,957 766,716 5,129,285 6,558,733 40,498,840
Advances 6,791,963 12,158,088 19,622,929 31,052,169 82,160,074
Other Assets 185,960 406,486 576,691 1,172,363 3,353,958
Operating fixed assets 67,283 129,389 368,551 622,216 30,800,135
Deferred tax assets - - - 127,158 3,366,766
Total Assets 8,693,029 16,557,463 32,018,715 46,423,540 176,653,404
------------------------------------------------------------------------------------------------------------
LIABILITIES
------------------------------------------------------------------------------------------------------------
Bills payable 74,467 98,620 274,325 215,769 2,110,211
Borrowings from financial institutions 1,975,230 4,159,194 4,547,096 9,164,121 16,669,412
Deposits and other accounts 4,778,974 10,648,570 22,554,274 30,566,540 116,671,219
Liabilities against assets subject to financial 0 - - - 7,176
Redeemabale capital 166,607 - - - -
Deferred tax liabilities 198,531 98,911 2,465 - -
Other liabilities 239,770 188,320 427,680 2,150,538 4,603,352
Total Liabilities 7,433,579 15,193,615 27,805,840 42,096,968 140,061,370
NET ASSETS 4075590 4058050 3529391 4,326,572 36,592,034
------------------------------------------------------------------------------------------------------------
REPRESENTED BY
------------------------------------------------------------------------------------------------------------
Share capital 1,229,041 1,229,041 3,361,522 3,361,522 22,017,968
Reserves 9,603 34,125 694,623 719,810 719,810
Unappropriated profit 16,522 114,609 197,626 298,376 -143,392
1,255,186 1,377,775 4,253,771 4,379,708 22,594,386
------------------------------------------------------------------------------------------------------------
Shares to be issued
------------------------------------------------------------------------------------------------------------
(Deficit) on revaluation of securities - net 4,284 -13,927 -40,896 -47,833 -28,529
Total Equity 1,259,450 1,363,848 4,212,875 4,331,875 36,592,034
------------------------------------------------------------------------------------------------------------
Income Statement
------------------------------------------------------------------------------------------------------------
Mark-up/return/interest earned 172,372 803,542 1,716,917 3,473,364 6,999,888
Mark-up/return/interest expensed 82,552 412,680 1,118,957 2,452,192 4,995,955
Net mark-up/interest income 89,820 390,862 597,960 1,021,172 2,003,933
Provision against non-performing advances 7,794 73,255 120,931 269,583 1,494,801
Provision for diminution in investment value - - -29,643 - -
Bad Debts writted off directly - - - - -
-7,794 -73,255 -91,288 -269,583 -1,494,801
Net mark-up/interest income after provisions 82,026 317,607 506,672 751,589 509,132
------------------------------------------------------------------------------------------------------------
NON MARK-UP/INTERST INCOME
------------------------------------------------------------------------------------------------------------
Fee, commission and broerage income 4,299 40,418 91,707 179,994 249,020
Dividend income 1,125 16,015 16,668 14,528 13,723
Income from foreign currencies 783 25,596 109,145 208,627 225,235
Gain on sale of securities - 12,806 4,040 222 24,021
Income from dealing in govt. securities - - - - -
Other income 1,499 16,732 14,599 90,635 86,772
Total non mark-up/interest income 7,706 111,567 236,159 494,006 598,771
Total Income 89,732 429,174 742,831 1,245,595 1,107,903
------------------------------------------------------------------------------------------------------------
NON MARK-UP/INTEREST EXPENSE
------------------------------------------------------------------------------------------------------------
Administrative expenses 61,987 393,719 711,545 1,221,423 2,002,159
Other (reversals) / provisions / write offs - 3,964 327 -328 2,669
Other charges - 158 1,182 2,587 2,133
Total non mark-up/interest expenses -61,987 -397,841 -713,054 -1,223,682 -2,006,961
Share of profit / (loss) from associates 0 - -2,776 - 327,851
Extra ordinary / Unusual items - - - - -
Profit before taxation 27,745 31,333 27,001 21,913 -571,207
Taxation - Current -8,682 -14,031 -20,178 -33,422 -37,925
Prior years - 5,687 - - -
Deferred 1,590 99,620 96,948 129,367 258,575
-7,092 91,276 76,770 95,945 220,650
Profit after taxation 20653 122609 103771 117858 -350557
Unappropriated profit brought forward - 16,522 103,771 197,626 293,073
Profits available for appropriations 20,653 139,131 207,542 315,484 -57,484
------------------------------------------------------------------------------------------------------------
Financial Ratios
------------------------------------------------------------------------------------------------------------
EARNING RATIOS
------------------------------------------------------------------------------------------------------------
Return on Deposits 0.43% 1.59% 0.63% 0.44% -0.48%
Return on Assets 0.24% 0.97% 0.43% 0.30% -0.31%
Return on Equity 1.64% 9.35% 3.72% 2.76% -1.71%
------------------------------------------------------------------------------------------------------------
LIQUIDITY RATIOS
------------------------------------------------------------------------------------------------------------
Advances to Deposit Ratio 1.42 1.23 0.96 0.95 0.77
Earning Assets to Assets 0.93 0.30 0.29 0.29 0.25
Yield on earning assets 0.02 0.21 0.25 0.31 0.25
Cost of funding earning assets 0.01 0.11 0.16 0.22 0.18
------------------------------------------------------------------------------------------------------------
ASSET QUALITY RATIO
------------------------------------------------------------------------------------------------------------
Non-Performing Loans 1,514,243 1,464,030 699,033 1,023,868 13,252,316
NPLs to advances 0.22 0.12 0.04 0.03 0.16
Provisions to NPLs 0.01 0.05 0.17 0.26 0.11
------------------------------------------------------------------------------------------------------------
SOLVENCY RATIOS
------------------------------------------------------------------------------------------------------------
Equity to Assets 14.49% 10.39% 11.48% 10.89% 18.35%
Equity to Deposits 26.35% 17.00% 16.80% 16.09% 27.79%
Earning assets to Deposits 169.31% 49.33% 41.92% 42.19% 37.95%
------------------------------------------------------------------------------------------------------------
DEBT MANAGEMENT RATIOS
------------------------------------------------------------------------------------------------------------
Debt to Asset 0.86 0.90 0.89 0.89 0.82
Debt to Equity 5.90 8.63 7.71 8.18 4.45
Deposit times capital 3.79 5.88 5.95 6.22 3.60
------------------------------------------------------------------------------------------------------------
MARKET VALUE RATIOS
------------------------------------------------------------------------------------------------------------
Price/Earnings Ratio 107.29 19.70 66.07 116.76 -69.90
Market to book value 1.79 1.74 2.35 1.88 2.18
------------------------------------------------------------------------------------------------------------
DIVIDEND RATIOS
------------------------------------------------------------------------------------------------------------
Dividend Per share 0.00 0.00 0.00 0.00 0.00
Dividend yield 0.00 0.00 0.00 0.00 0.00
============================================================================================================
COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].
Comments
Comments are closed.