UBL had a difficult CY18 in terms of printability. That is one way of looking at banks. Another way is to look at the balance sheet direction, and UBL seems to have made good strides on that ground. UBL managed to maintain the net mark-up income at previous year’s level – despite a contraction in overall balance sheet size. Surely, higher average interest rate during the period played its part in keeping the top-line going.
The bank’s average advances during CY18 grew 23 percent year-on-year, mainly led by a surge in domestic book that expanded by 35 percent. The bank’s ADR now sits at over 52 percent. The loan portfolio has a heavy tilt towards energy sector, as corporate sector lending posted a growth of 31 percent year-on-year. Advances in consumer and SME categories, also grew appreciably at 36 and 25 percent, respectively.
The investment portfolio on the other hand, shrunk by 28 percent over December 2017, taking the investment to deposit ratio down from 86 percent to a little over 57 percent. The PIB portfolio continues to constitute the major chunk of investments, with an average yield of 8.2 percent, with Rs100 billion maturing in CY19. Faced with thin spreads, and the prevailing interest rate scenario, UBL, like most its peers, has also of late made the effort to shape the investment portfolio toward more short-term investments in treasury bills.
The bank’s non-core income continues to provide able support to the bottom-line, evident from a 14 percent rise year-on-year, much against industry trend. The fee, commission, foreign exchange and sale on securities, all chipped in with valuable contributions. UBL did exceptionally well to keep a lid on non mark-up expenses, hinting at improved cost control and system efficiencies.
The deposit growth continues to be strong, without being spectacular. UBL has been putting in efforts to reduce its cost of deposits, as adding the right kind of deposit to the mix has been termed as a key focus area. UBL managed to keep the cost of domestic deposits close to 3 percent, which is quite remarkable, given the interest rate environment throughout CY18. The bank’s CASA remained strong, yet, there is more room to further increase it. Of Rs93 billion added to the deposit mix, Rs60 billion were added in current accounts, further strengthening the CASA ratio.
But the massive provisioning expense to the tune of nearly Rs13 billion, coupled with the cost incurred on account of pension liability –proved too hot to handle. The provisioning expenses mainly came from the overseas loan book. That said, the coverage ratio is still adequate, and does not alarm ring bells.
Going forward, UBL in its conference call to brokerage analysts, hinted at a slowdown in advances growth to as low as 7 percent. This goes on to show the economic slowdown is going to lead to lower growth in deposits. The asset mix is now likely to be tilted more towards high yielding investments, preferably short term.
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