National Bank of Pakistan (NBP) improved its 1HCY21 pretax profits by 30 percent year-on-year, despite lower funded and non-funded income, as provisioning expenses reduced by half. No joy for the shareholders looking for dividends, as NBP continues to shy away from payout. The balance sheet in the meanwhile, has continued to expand.
The average earning assets during 1HCY21 at Rs2.55 billion were 6.4 percent higher year-on-year, but the drastic decrease in interest rates from an average 11 percent in 1HCY20 to current rate, meant the markup earned remained considerably lower year-on-year. The interest earned on investment was around 60 percent of the topline, whereas interest earned on advances at Rs42 billion made up the rest.
The non-funded income stayed marginally lower year-on-year. Most earning arms delivered strikingly similar performance from previous year same period. Dividend income and gain on sale of equities made up for the fall in foreign exchange income due to lower trade activities. Although, the cost-to-income ratio slightly worsened to 46.8 percent from 44.2 percent in the same period last year, the increase in administrative expenses at under 4 percent speaks volume of the exemplary control, NBP has managed to achieve. This may not sound a great deal in the banking industry, but achieving it being state-owned must be credited.
The asset quality has expectedly come under pressure due to the pandemic. NBP’s non-performing loans went up by almost 8 percent year-on-year to Rs184 billion. The infection ratio inched slightly up from 14.8 percent in 1HCY20 to 15.6 percent, whereas the coverage ratio dropped by 170 basis points year-on-year to 88.3 percent.
On the balance sheet front, interest-bearing government securities continue to make the bulk of asset portfolio. Investment stood at Rs1.85 trillion, higher by 26 percent over December 2020. Advances on the other hand grew marginally by 1.4 percent over December 2020 to Rs997 billion. The ADR has come down to 37 percent, which is a multiyear low for the bank. The Bank puts it down to “limited loan demand in the private sector”. NBP has adopted a more risk prudent strategy to lend more to high quality low-ticket SME borrowers.
The deposit front saw 11 percent growth over December 2020, in line with industry average growth. Low-cost current account deposits now constitute nearly a quarter of total deposits, as the CASA ratio continues to further improve, ending at 86 percent as at June end 2021. NBP has performed rather well, considering it has to live with all the ills of being state-owned. The Bank aims to remain focused on SME, microfinance, PM housing scheme etc on “priority basis”. Time will tell if the focus and priority lead to improvement in overall credit demand.
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