National Bank of Pakistan (NBP) keeps churning profits, and 1HCY19 was no different. Save from a higher effective tax rate, everything about the profit and loss statement, was heartening reading. The state-owned bank beat all its peers in racking up the highest income in the industry, backed by strong balance sheet growth.
The gross advances averaged over a trillion rupees during the period, representing a sizeable 21 percent year-on-year increase. Both the corporate loan book and Islamic finances increased appreciably, leading to a 58 percent year-on-year growth in interest income on loans and advances.
The rise in return on government securities also made decent contribution to the top line, increasing by nearly 30 percent year-on-year. The share of investments in the total assets came down from 46 percent by December end 2018, to nearly 42 percent, with bulk of investments parked in zero risk weighted treasury investments, and high dividend yielding equities. The average investment size came down by 5 percent from the corresponding period last year. The average earning yields on investments soared from 6.6 percent in the same period last year, to 9.6 percent in 1HCY19.
The rather challenging environment pertaining to the interest rate scenario and the steep currency depreciation led to higher NPLs during the period. The NPLs increased by Rs8 billion to Rs141 billion, resulting in a slightly higher infection ratio of 12.9 percent. That said, the NPLs are adequately covered with a coverage ratio of close to 94 percent.
On the liability front, steady progress has been made, with deposits base increasing by 4 percent over December 2018. Active mobilization of CASA deposits was at the heart of the deposit strategy, with more additions in the current and saving accounts, and a slight decline in terms deposits, resulting into a much improved CASA ratio of 84 percent, up from 81 percent as at December 2018. This was helpful, particularly in an increasing interest rate scenario, which helped the bank curtail the cost of deposits to a degree, as it grew from 4 percent in 1HCY18 to 6.4 percent in 1HCY19, despite a 575 bps increase in discount rate in the same period.
The non funded income grew appreciably and was well diversified across categories. Save for the subpar performance of the stock markets which resulted in low contribution in terms of gain on sale of securities, the contribution from remittance, bancassurance, foreign exchange income and dividend income, grew admirably – strengthening the bottom-line. The administrative costs were kept in check despite significant increase in overall inflation and one-off cost on account of deposit protection premium.
The NBP has sailed rather smoothly in tough times, and times ahead may well be getting easier, as the economy will invariably pick up, sooner or later. The bank is well placed to cash in on opportunities, given its strong balance sheet and sound capital adequacy.
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