JS Bank Limited

Brief Introduction: JS Bank Limited is a subsidiary of JS Group, one of the most diversified financial service groups operating in Pakistan. Besides JS Financial, winning laurels in industries such as asset management, investment banking, securities brokerage, commercial banking, insurance and trade finance, the group also has five vertical businesses - JS Industrial, JS Infocom, JS Property, JS Resources and JS Transportation.
JS Bank Limited was formed as a result of amalgamation of Jahangir Siddiqui Investment Bank Limited with the commercial banking operations of American Express Bank Ltd Pakistan. JSBL commenced its operations in Pakistan as a fully scheduled bank on December 30, 2006. JS Group also launched Islamic banking and finance services by establishing a premier Islamic commercial bank under the brand of BankIslami in 2006. Having entered the seventh year of its operations, JSBL has tapped most of the metropolises. Currently having a network size of 185 branches across 100 cities, JSBL is well poised to stretch its network nation-wide.
Advances - Investment Divide Much in line with the industry-wide stream, JSBL remained focused towards investments in the first quarter of the ongoing fiscal year. The stride is evident in the investment-to-deposit ratio (IDR) of JSBL which massively jumped during the period while advances could not muster significant growth, thus further thinning the advances-to-deposit ratio (ADR). However, this is not the recent tale. Year-on-year analysis of advances - investments disparity over the years suggests that lending money to private sector was barely a JSBL forte.
Picturing bank's position back in CY10 witnesses almost an equivalent position of ADR and IDR. Since CY10 up till 1QCY13, ADR slumped to 34 percent while IDR boosted from 53 percent to 84 percent over the comparable period. On the advances front, as of December 2012, JSBL has major exposures in textile sector, followed by consumers, chemical and pharmaceutical and food and confectionary.
Non-performing Loan Portfolio JSBL's cautious lending approach of late enabled it to manage its NPLs quite well. Over the years, despite growth in advances, infection ratio hovered around 14 percent to 15 percent. Break-up of NPLs shows that the highest contribution of toxic assets came in from chemical and pharmaceutical sector where NPLs-to-gross advances ratio remained over 70 percent in CY12. Textile sector, the largest client of JSBL, however, registered the infection ratio of 19 percent in CY12. The bank holds a convenient provisioning position with coverage ratio standing at 36 percent in 1QCY13.
Deposit Mobilisation Deposits grew significantly with larger chunk directed from individual depositors, speaking volumes of the bank's strong foothold in retail banking sector. In CY12, JSBL witnessed an increase in customer accounts by 42 percent to 170,000. On the grim note, improved deposit mobilisation couldn't really trigger the low-cost deposit base of JSBL which hovers around 55 percent to 57 percent. Healthy top line growth, categorically cast shadows on mark-up expenses, which albeit grew on the heels of deposit growth but couldn't suppress JSBL's gross spread ratio. In 1QCY13, given low interest rate scenario and high floor rate on saving deposits, gross spread ratio raises red flag, having shed 10 basis points.
Non Mark-up Income JSBL's income diversification provided stupendous support to its bottom line over the years. Non mark-up income which stood at 10 percent of JSBL's top line reached 35 percent as the bank completed its CY12 journey. A momentous growth observed in non-mark-up income over the years can be attributed to JSBL's growing bancassurance business, increase in home remittances transactions and also due to gains arising from sale of securities. However, banking on non mark-up sources doesn't provide long-term sustainability to the bottom line. If the bank aims to continue minting from risk free sources, the bank needs to manage its costs in order to remain profitable in the long run.
Profitability On the back of healthy top line growth coupled with notable sustainability provided by non mark-up income, the bottom line of JSBL rode an upward trajectory over the years. However, in 1QCY13, low interest rates coupled with heightened mark-up expenses owing to increased floor rate on saving deposits stole the charm by repressing the bottom line growth. Moreover, extensive borrowings (SBP and interbank) also pushed up the mark-up expenses thereby stifling gross spread ratio during 1QCY13.
Future Outlook With interest rates expected to turn its gaze up in 3QCY13, banks' top line might garner some support. However, SBP instruction to pay at least minimum profit on the average balance of saving deposits instead of minimum balance tend to offset the impact of increasing interest rates.
Moreover, JSBL's impending acquisition of HSBC (Pakistan operations) is also likely to give the bank an edge in the consumer banking segment. Besides, JSBL might also benefit from superior information technology infrastructure and better risk management parameters of HSBC.
With Nawaz Sharif poised to become Prime Minister, the country is likely to witness economic reforms as hinted by the party. Revival of economy has been placed at the top of the priority list with some of the major targets being GDP growth of six percent, budget deficit down to four percent of GDP, tax-to-GDP ratio increase to 15 percent by 2018, privatisation of PSEs, reforms in financial and capital markets. Given the promises hold any reality, the situation might bode well for the banking sector, among others. It might give some respite to the government borrowing from the banking sector, enabling it to venture private sector avenues thereby reviving its core operations.

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JSBL - Key ratios

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Indicators         CY10    CY11    CY12  1QCY13

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Infection Ratio     14%     15%     15%     14%

Coverage Ratio      28%     19%     32%     36%

Spread Ratio        32%     40%     40%     30%

Capital Ratio       15%     16%     13%     12%

IDR                 52%     57%     77%     84%

ADR                 53%     45%     32%     34%

CASA                57%     56%     55%     55%

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Source: Company Accounts

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JS Bank Limited

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Rs (mn)                              CY10     CY11     CY12   1QCY13

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Mark-up Earned                       3,300    4,319    6,168    1,658

Mark-up Expenses                     2,255    2,584    3,732    1,158

Net Mark-up Income                   1,045    1,736    2,437      500

Provisioning / (Reveral)              136      151      530       87

Net Mark-up Income after provision     908    1,584    1,907      413

Non Mark-up / Interest Income         333      770    2,148      531

Operating Revenues                  1,241    2,354    4,055      944

Non Mark-up / Interest Expenses     1,864    2,119    2,865      828

Profit Before Taxation              (623)      235    1,190      116

Taxation                              215      176      370       62

Profit After Taxation               (407)       59      820       54

EPS (Rs)                           (0.66)     0.42     0.71     0.01

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