The top line of the mighty five did wonders in 3Q CY13 but remained unable to muster growth for the bottom line. First off, hats off to the fifth largest bank-–ABL, for staggering top line growth of 53 percent, over the previous quarter. By comparison, MCB and NBP looked unimpressive on this front during 3Q CY13. The marvellous top line growth for ABL came on the heels of investments which boasted a quarter-on-quarter growth of 12 percent in 3Q CY13; leaving advances in the lurch as they slid seven percent over the same period.
Except for ABL, the other four big banks shunned away investments in 3Q CY13, presumably given an uncertain discount rate outlook since country’s entry into an IMF programme. This plopped down their cumulative Investment-to-Deposit Ratio (IDR) to 53 percent in 3Q CY13 from 55 percent in the previous quarter. Conversely, ADR moved up a tad.
On the deposit mobilization front, UBL stood out with three percent growth over the previous quarter; followed by HBL. NBP remained dormant in this pursuit as its deposits fell 11 percent, during the same period, although it undertook significant borrowings during the quarter. On a cumulative basis, deposits with the big five banks dipped by three percent, compared to 2Q CY13.
Despite slow deposit mobilisation, higher proportion of saving deposits is drove up cumulative mark-up expense for the industry giants, setting down their spread ratio to 45 percent in 3Q CY13 from 47 percent in the 2Q CY13. However, in real terms, Net Interest Margin (NIM) grew five percent in this period.
The big five banks sustained their asset quality during the third quarter; UBL remained the most efficient in this domain as its Non-Performing Loans (NPLs) fell by five percent compared to 2Q CY13. Sustained asset quality kept the infection ratio constant and resulted in a substantial drop in cumulative provisioning expense. Except for ABL, no other big bank booked provisioning during 3Q CY13.
ABL booked a massive provisioning expense of Rs310 million in 3Q CY13 against Rs31 million in the previous quarter even as its NPLs ticked down mainly because the bank has not realised the benefit of Forced Sale Value (FSV) allowed by SBP while booking provisions. Hence, ABL has the highest coverage ratio of 92 percent as of quarter-end.
Non-mark-up heads proved to be the culprit this time marring the cumulative bottom line for the big five banks. But, ABL shines on this front too, recording a marvellous quarter-on-quarter growth of 48 percent in its non-mark-up income. UBL’s non-mark-up income also managed to post growth in this period albeit not in terms comparable to ABL.
The bottom line of the big five banks endured the pain of weak non-mark-up heads and trimmed by four percent, when compared to the previous quarter. On an individual basis, NBP took the greatest hit as its bottom line dropped 89 percent, compared to the previous quarter while ABL stood out with a fabulous 51 percent growth in its bottom line in 3Q CY13, compared to the previous quarter.
Going forward, with discount rate geared to rise, the top line of the banking sector may gain some impetus; however, the magnitude of growth will also greatly depend on the right asset mix and efforts to perk up earning assets. NBP should take lesson from its 3Q CY13 whereby its lethargy towards earning assets wreaked havoc on its bottom line.
While the discount rate hike is expected to buttress the top line, it can mean trouble for spreads given SBP’s recent directive of linking Minimum Deposit Rate (MDR) on saving deposits to the discount rate. MCB, with the highest proportion of 53 percent of saving deposits, is likely to bear the greatest hit. How the big five banks turn the odds in their favour will be interesting to see.
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SELECTED PERFORMANCE INDICATORS
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3QCY13 2QCY13
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Infection Ratio 13% 13%
Coverage Ratio 85% 83%
IDR 53% 55%
ADR 47% 45%
CASA 71% 69%
ROA 0.5% 0.5%
ROE 4% 4%
Spread Ratio 45% 47%
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Source: Company Accounts
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CONSOLIDATED P&L OF BIG 5 BANKS
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(Rs mn) 3QCY13 2QCY13 Chg
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Markup Earned 127,998 116,901 9%
Markup Expenses 70,591 62,430 13%
Net Markup Income 57,408 54,471 5%
Provisioning 4,642 6,413 -28%
Net Markup Income after provisions 52,766 48,058 10%
Other Income 24,862 25,727 -3%
Operating Revenues 77,628 73,785 5%
Other Expenses 42,521 37,926 12%
Profit Before Taxation 35,404 36,658 -3%
Taxation 11,300 11,162 1%
Profit After Taxation 24,417 25,496 -4%
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Source: Company Accounts
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