Standard Chartered Bank (Pakistan) Limited

Standard Chartered Bank (Pakistan) Limited (PSX: SCBPL) started off as Chartered Bank and inaugurated its first office in Karachi in 1863. The bank was incorporated in Pakistan in 2006. Standard Chartered Plc., incorporated in England, is the ultimate holding company of SCBPL. The bank has a network of 40 branches, 149 ATMs and 20 CDMs across 10 cities. SCBPL provides a wide range of Retail, Corporate and Institutional banking services. It also offers full suite of Islamic Banking services under its brand “Standard Chartered Saadiq”.

Pattern of Shareholding

As of December 31, 2022, SCBPL has a total of 3871.585 million shares outstanding which are held by 7012 shareholders. Parent company holds 98.99 percent shares of SCBPL. Local general public has a stake of 0.79 percent in the bank while Banks, DFIs and NBFIs account for 0.16 percent of the outstanding shares of SCBPL. The remaining shares are held by other categories of shareholders.

Historical Performance (2018-22)

The asset base of the bank has been showing steady growth in all the years under consideration with the highest year-on-year growth of 16 percent recorded in both 2020 and 2021. In 2020, when the economic activity was tamed due to COVID-19, SCBPL’s advances slid by 15 percent year-on-year. However, investment portfolio of the bank surged by a significant 40 percent year-on-year in 2020 which contributed a great deal in building up the asset base of the bank during the year. This took the AD ratio of the bank to 32 percent in 2020, down from 47 percent in the previous year. Conversely, ID ratio climbed up to 63 percent in 2021 from 53.5 percent in 2019. In 2021, when the signs of COVID-19 began to taper, advances and investments grew by a comparable momentum of 28 percent and 29 percent year-on-year respectively. However, it is to be noted that in all the years under consideration, SCBPL has adopted a cautious lending approach and has conveniently parked its funds in government securities. This is evident from the fact that its ID ratio is well above its AD ratio in all the years under consideration. Moreover, AD ratio deteriorated from 40 percent in 2018 to 30 percent in 2019. ID ratio showed some fluctuations over the years but hovers at almost the same level in 2022 as in 2018 i.e. around 66 percent. It is pertinent to note that SCBPL didn’t elevate its AD ratio even when the banking sector was slapped with higher taxation on government securities for the AD ratio lesser than 40 percent. The lack of borrowing appetite of the private sector on the back of worsening economic and political parameters are also to be blamed for a 7 percent year-on-year downtick in SCBPL’s advances in 2022. As deposits grew by a considerable 15 percent year-on-year in 2022, SCBPL appeared to be left with no other option than to invest in government securities. For the first time in the banking history, bankers were trying to shed their deposits by pleading their customers to withdraw their deposits instead of asking them for more deposits. While this was against the very essence of banking, the bankers were in a pickle on how to mobilize their deposits without compromising on their AD ratio amidst lackluster economic activity and lesser lending avenues in the private sector. The AD ratio of 47 percent recorded by the bank in 2019 was the highest since 2015. The ID ratio touted its highest value of 72 percent in 2021 since 2015. Majority of SCBPL’s lending exposure stays in the corporate sector which is considered to be the safest bet.

With such a vigilant lending approach, NPLs of the bank have started plunging since 2021 after growing by a massive 28 percent year-on-year in 2020 as COVID-19 had crippled the economy, rendering many businesses incapable of paying back their loans. This took the infection ratio to 11.3 percent in 2020 which is the highest among all the years under consideration. This went down to 8 percent in 2021 and then rested at 9 percent in 2022. In 2018 and 2019, SCBPL was booking reversals as its infection ratio was ticking down and it was maintaining a coverage ratio of around 97 percent which was more than what was required under the regulation. However, the sudden hike in the NPLs in 2020 pushed the coverage ratio down to 84 percent despite the fact that the bank booked the provision of Rs.4940.71 million in 2020. With the exception of 2020, in all the years under consideration, SCBPL maintains a coverage ratio above 90 percent.

On the liabilities front, deposits ride an upward trajectory in all the years under consideration with CASA ratio growing from 94 percent in 2018 to 96 percent in 2022. With multiple upward revisions in the discount rate and with the presence of minimum deposit rate, saving account deposits are no longer lucrative for the conventional banks. The break-up of CASA shows that since 2019, saving deposits conveniently stays above the current deposits. In 2022, CA ratio clocked in at 46 percent while SA ratio stood at 50 percent. The bank needs to reassess the composition of its CASA in order to elevate its spreads and make the most of the monetary tightening scenario.

A sneak into the financial performance of SCBPL shows that except for a marginal 1 percent year-on-year growth in 2020 and a year-on-year decline of 7 percent in 2021 due to COVID-19 related monetary easing as well as vigilant lending, the net spread of the bank have showed staggering growth. In 2022, the net spread boasted a stunning 70 percent year-on-year growth; however, the spread ratio fell from 56 percent in 2021 to 49 percent in 2022 – thanks to MDR. SCBPL touted the highest spread ratio of 60 percent in 2019. Non-fund based income which had been growing since 2018 took a 13 percent year-on-year nosedive in 2021 due to considerable decline in fee and commission income, gain on securities and derivatives income. However, non-funded income gave a strong comeback in 2022, touting a 62 percent year-on-year growth which came on the heels of a handsome foreign exchange income and income from derivatives. It is to be noted that non-markup income to total income has fallen from 34 percent in 2018 to 29 percent in 2022. One reason for this is the robust markup income which dilutes the share of non-markup income in the total income pie. Another reason is the visible fall in the fee and commission income over the years due to decline in the card-related fee. Fee and commission income which had a share of 43 percent in the total non-funded income in 2018 fell to 17 percent of the total non-funded income in 2022.

SCBPL deserves a pat on the back to considerably improve its cost-to-income ratio from 40 percent in 2018 to 22 percent in 2022. Net profit also rides an ascending path in all the years under consideration except for an 18 percent year-on-year fall in 2020. In 2022, the profit after tax posted a magnificent growth of 45 percent year-on-year to clock in at Rs.19,844.38 million with an EPS of Rs.5.13 despite higher taxation imposed on the sector.

Recent Performance (1QCY23)

During 1QCY23, SCBPL’s assets grew by 3 percent over December 2022. The growth came on the back of advances which inched up by 5 percent over the year-end figure. Conversely, investments fell by 22 percent when compared to December 2022. This pushed the AD ratio up to 34 percent as of March 2023, while ID ratio drastically fell to 51 percent. NPLs posted a meager uptick of 1 percent in 1QCY23, however, infection ratio slightly ticked down to 8.6 percent. Coverage ratio stood at 94 percent in 1QCY23.

Deposits posted a marginal 1 percent growth over December 2022 level which came on the back of current deposits which grew by 22 percent while saving deposits fell by 12 percent. Not only did the CASA ratio improved to 98 percent in 1QCY23, what is more exciting is CA ratio in excess of SA ratio. CA ratio flew to 55 percent as of March 2023 while SA ratio plunged to 43 percent which is a good omen amidst MDR on saving deposits.

Net markup grew by a massive 140 percent year-on-year in 1QCY23 and spread ratio also visibly improved from 50 percent in 1QCY22 to 60 percent in 1QCY23. Non-funded income drastically fell by 88 percent year-on-year in 1QCY23 on the back of a substantial loss on securities (Pakistan Investment bond to be specific). Foreign exchange income and derivatives income also fell by 69 percent and 32 percent respectively in 1QCY23. This shoved the non-markup income to total income down from 43 percent in 1QCY22 to 3.44 percent in 1QCY23. The poor performance of non-funded income diluted the growth of total income in 1QCY23 which came out to be 43 percent year-on-year despite tremendous growth in NIM. Cost to income ratio further improved from 23 percent in 1QCY22 to 20 percent in 1QCY23. The net profit grew by 30 percent year-on-year in 1QCY23 to clock in at Rs.9190.64 million with an EPS of Rs.2.37 versus Rs.1.82 during the same period last year.

Future Outlook

With the current deposits now having a lion’s share in the total deposits and advances slightly ticking up, SCBPL is all set to optimize the monetary tightening scenario. Moreover, majority of SCBPL’s assets have a short-term maturity which mean that any further rate hike will provide an immediate benefit to the bank by driving up its markup income.