United Bank Limited

Having an asset base of Rs 778 billion as of December 31, 2011, United Bank Limited (UBL) is the third largest commercial bank in the country. The bank is currently operating through a domestic network of 1,218 branches. The bank has an international presence in 10 countries, with 17 overseas branches.
Net profits Largely in line with market expectations, UBL managed to record an outstanding growth in its bottom line in CY11 as compared to the last year. Thriving on a growing business size and improvement in operating efficiency, the bank clocked in a net profit of Rs 15.5 billion, marking a jump of 39 percent as compared to the previous year- the highest growth rate among the group of top five banks.
In addition to growth in operating revenues, decline in provisioning expenses also supported the bottom-line growth. UBL's EPS improved to Rs 12.66 per share in CY11, from Rs 9.12 per share in CY10. UBL's bottom-line had expanded by 21 percent and 10 percent in CY10 and CY09, respectively.
Mark-up revenues Aided by an expansion in the asset base, the bank's mark-up revenues managed to exhibit an impressive growth. Growing interest in investments supported the asset growth, given that the bank's investments portfolio expanded by 31 percent during CY11 to Rs 294 billion as on December 31, 2011.
This lifted UBL's investment to deposit ratio (IDR) by seven percentage points to 48 percent at the end of December, 2011, relative to the same period last year. However, the industry's (all scheduled banks) IDR stood at 51 percent at the end of December, 2011.
In line with the industry wide trend, given that the banking sector has become cautious and conservative in lending to the private sector, the bank's advances portfolio fell by three percent to Rs 325 billion. The combined advances base of the group of other four large private banks: UBL, MCB, ABL and HBL, fell by five percent during CY11 to Rs 1,212 billion as on December 31, 2011.
UBL's advances to deposits ratio (ADR) fell to 53 percent at the end of CY11, nearly eight percentage points lower relative to the same time of last year. At the current level, the bank's ADR is close to the industry average. Share of returns from investments accounted for 43 percent of the top-line in CY11, as opposed to 30 percent in CY10.
Mark-up expenses Deposit expansion resulted in higher mark-up expenses. The deposit base reached Rs 613 billion as on December 31, 2011, marking a growth of 11 percent as compared to the same period last year, when the industry's deposit base grew by 15 percent. As on December 31, 2011, UBL accounted for nearly 10 percent of the industry's deposit base.
However, the combined deposit base of the group of five large banks reached Rs 3,306 billion at the end of December 2011, marking a growth of 14 percent relative to the same period last year. The bank managed to tilt its deposits mix in favour of saving and current accounts, as it witnessed a healthy growth in its current accounts. Hence, CASA ratio improved to 68 percent as on December 31, 2011, from 66 percent same period last year.
Net mark-up income The bank's net mark-up income accrued a gain of 15 percent. However, the bank's gross spread stood at 56 percent in CY11, nearly 187bps lower than CY10. The average gross spread ratio for the group of top five banks stood at 55.2 percent in CY11. The average monthly KIBOR stood at around 13.27 percent in CY11, nearly 56bps higher compared to the previous year.
Non mark-up income and expenses On the heels of a higher income from investment banking activities, dividend income, dealing in foreign currencies, gain on sale of securities and other income, the bank's non mark-up income grew by 26 percent in CY11 as compared to the previous year.
The bank attributed the growth in fees and commission generated from core banking business to increase in remittances, FI commissions and cross-sell of bancassurance. While the growth in exchange income stemmed from higher transaction volume and better leveraging of market opportunities. The bank's non mark-up income also benefited from increase in gain on fixed income securities and improvement in derivatives income. Hence, the non mark-up income's contribution in the total operating revenues inched up to around 24.4 percent in CY11, from 22.7 percent in CY10.
The growth in non mark-up expenses, which jumped by 11 percent as compared to the last year, seems justifiable, given the inflationary environment and the bank's growing focus on infrastructure expansion. The bank added 94 newer branches to its existing domestic networking, bringing the total branch network to 1,218 branches at the end of CY11. The cherry on top is that the bank's income to expense ratio improved to 2.53 in CY11, as opposed to 2.38 in CY10.
NPLs The bank managed to curtail growth in non-performing loans, given that the bank's NPLs grew by five percent to Rs 51 billion as on December 31, 2011, relative to same period last year. The bank's NPLs grew by 24 percent and 40 percent, CY10 and CY09, respectively.
Similarly, the collective toxic loans for the group of five large banks reached Rs 238 billion at the end of CY11, marking a jump of six percent relative to the same period last year. Amid decline in gross advances, the bank's infection ratio inched up by around 77bps to 14 percent as on December 31, 2011, relative to the same period last year. The good part is that the group's average coverage ratio improved by eight percentage points to 80 percent at the end of CY11 compared to the same period last year.