Having a total asset base of Rs 354 billion as of September 30, 2011, Standard Chartered Bank Pakistan (SCBPL) is the second largest mid-sized bank after Bank Alfalah, in Pakistan. The bank is one of the most profitable financial intermediaries in the country, providing a wide array of banking services, focusing on both retail and wholesale side.
This is down to SCBPL's association with Standard Chartered PLC, which has a strong footing in developing countries and a healthy financial standing. SCBPL runs 143 domestic branches and owns three subsidiaries: Standard Chartered Leasing Ltd, Standard Chartered Modaraba and Standard Chartered Services of Pakistan (Private) Ltd. In keeping with a growing demand for Shariah-based products, the bank has been increasing its footprint in the Islamic banking segment, with a network of 15 Islamic banking branches.
Markup revenues Aided by its growing asset base and a higher KIBOR level, the bank's markup revenues accrued year-on-year gain of 14 percent during the first nine months of CY11. The 6-month KIBOR averaged around 13.66 percent during 9MCY11, nearly 116 bps higher compared with the same period a year earlier.
Unlike the banking industry, which is shying away from lending to the private sector, SCBPL's advances portfolio expanded by 8 percent during the first nine months of CY11 to Rs 151 billion at the end of September, 2011. Hence, the bank's advances to deposits ratio (ADR) which glows in comparison to its peers; stood at 64 percent at end of September, 2011 as opposed to an average of 55 percent and 57 percent for the group of ten mid-sized banks and five largest banks, respectively.
On the investments front, SCBPL considerably increased its investment base during the third quarter of CY11, bringing the total investment portfolio to Rs 108 billion at the end of September. This marks a whopping 48 percent jump in the investment pool during the first nine months of CY11.
The bank's Investment to deposit ratio (IDR) ameliorated by around 13 percentage points during the first nine months of CY11 to stand at 46 percent at the end of the third quarter, but it is still around 7 percentage points lower than the mid-sized banks cumulative IDR.
Markup expenses The bank's marketing efforts reciprocated with expansion in deposit base, which increased by 7 percent to Rs 235 billion at the end of September 2011. In light of growth in liabilities, the bank's markup expenses rose by 7 percent year-on-year to Rs 8.4 billion during 9MCY11. The best part is that the bank managed to further increase its share of low cost deposits, given that its CASA ratio jumped by 3 percentage points to 81 percent at the end of September, 2011-which is the highest level in the local banking industry.
Net interest income Capitalizing on a higher KIBOR level, growth in the asset base and a higher CASA ratio, the bank's net interest income registered year-on-year growth of 18 percent. The banking industry's average spread stood at 7.64 percent during 9MCY11, 21 bps higher compared to the same period a year ago.
Among the group of the ten mid-sized banks in Pakistan, SCBPL enjoyed the highest gross spread ratio, at around 64 percent, during the first nine months of CY11. To no one's surprise, it is also 8 percentage points above the top five banks average gross spread ratio of around 55 percent during the same period.
Non markup income and expenses The growth in income from investment banking activities was not as robust as from core banking operations. In fact, this is down to a marginal drop in commission and brokerage income and lower gain on sale of securities.
However, the bank's management deserves a pat on the back for curtailing its administrative expenses despite high inflationary pressure. This is down to the cost efficiency measure adopted by the bank, along with closure of certain branches. The branch network fell to 143 branches at the end of September, 2011, from 162 branches at the end of CY10.
At present, banks are either reallocating or closing branches in areas where two or more branches are located in close vicinity to improve utilisation of existing infrastructure. Thus, SCBPL's operating income to expense ratio ameliorated to 1.94 in 9MCY11, from 1.64 in the corresponding period a year ago. Average amount of deposit per branch increased to Rs 1.6 billion at the ends of September 2011, from Rs 1.4 billion at the end of CY10. This is the highest ratio among ten mid-sized and five large banks.
Non-performing loans The bank's non-performing loans rose by 14 percent during the first nine months of CY11 to Rs 25 billion at the end of September, 2011, when the combined non-performing loans of mid-sized increased by 11 percent. The bank's infection ratio inched up by 1 percentage point during the period under review to 15 percent at the end of September, 2011, which is close to the peer group's average. However, on account of a higher provisioning expenses, the bank's coverage ratio improved by 1 percentage points to 85 percent.
Profitability On account of higher core income, coupled with lower administrative expenses, the bank's bottom-line doubled to Rs 3.7 billion in 9MCY11 compared with the same period a year ago.
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Standard Chartered Bank
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(Rs mn) 9MCY11 9MCY10 chg
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Markup Earned 23,417 20,563 14%
Markup Expensed (8,444) (7,902) 7%
Net Markup Income 14,973 12,660 18%
Provisioning (3,639) (3,566) 2%
Net Markup income after provision 11,334 9,094 25%
Other income 4,648 4,406 6%
Operating revenues 19,622 17,066 15%
Other expenses (10,124) (10,497) -4%
Profit before taxation 5,859 3,004 95%
Profit after taxation 3,768 1,944 94%
EPS (Rs) 0.97 0.50
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Source: Company Accounts
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