MyBank Limited, previously Bolan Bank, was incorporated in 1992 as a commercial bank. It operates with a network of 50 branches across Pakistan. The bank obtained 10 new licences in 2007 and the network increased up to 60 branches before the year-end 2007.
It is listed on Karachi and Lahore stock exchanges and governed by the State Bank of Pakistan and the Securities and Exchange Commission of Pakistan. Iqbal Ali Mohamed, a leading industrialist, had acquired the controlling interest of the bank in March 2004. This change in sponsoring eventually led to the transformation of Bolan Bank into MyBank Ltd. The bank enjoys A (Single A) for the medium to long term and A-1 (A One) for the short-term entity ratings by Pakistan Credit Rating Agency Limited.
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September 30, September 30,
2008 2007
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Profit before taxation and provision 831,767 707,356
against non-performing loans
(Add)/Less: Provision against 299,618 (26,382)
non-performing loans-net
Profit before taxation 532,149 733,738
Less: Taxation 29,161 82,745
Profit after taxation 502,988 650,993
Add: Profit brought forward 496,827 586,905
Add: Transfer from surplus 16,781 17,536
on revaluation of fixed assets
Profit available for appropriation 1,016,596 1,255,434
Less: Transfer to statutory reserve 100,598 130,199
Profit carried forward 915,998 1,125,235
Earnings per share-Rupees 1.19 1.66
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Recent results 3Q08
Net mark-up income has shown an increase of nearly 30%, while after provisions, it has shown a decline of 27%. The provisioning against NPLs has grown by 1250% as compared to the same period last year. Non-interest income has shown an increase of 7.9%. Although dividend income and fee, commission and brokerage income has shown healthy increases, the loss on sale of securities offset the positive impact. Net income declined by 22.7% to Rs 502 million, resulting in an EPS of Rs 1.19 as compared to Rs 1.66 in the same period last year.
Investments have declined marginally, while advances increased by 7.5%, which is below the industry averages. Deposits have increased marginally, which is a positive development in a scenario of diminishing deposits in the banking industry.
In 2007, MyBank has made significant strides in terms of growth in assets, infrastructure, human capital and stakeholders' interests at large. 2007 has so far been the turnaround year in the bank's history with unprecedented growth in nearly all facets of the bank's performance. These positive indicators have partially been offset by changes in regulatory framework resulting in higher provisioning against non-performing portfolio during 2007. The bank has continuously focused on core banking activities to generate business, which is imperative for the long-term stability of the bank and has invested heavily in human resource, IT infrastructure and business development activities. A 12.50% bonus issue was made during 2007.
The process of consolidation in the financial sector witnessed in 2006 gained further momentum in 2007 putting further pressures in the already competitive market. The first full year of the new senior management team has added a much-needed boost to the bank's overall image. Business has flourished manifold with an emphasis on fee based income streams, low-cost deposits to finance growth, increase in branch network, e-banking and allied products and risk management approach towards investments and asset build up.
The progress made the bank during 2007, can be easily gauged from its overall performance was somewhat effected by the change in the regulatory framework as pertained to provisioning requirements and the conservative attitude of bank's management to prudently classify and provide certain advances on subjective basis during 2007. MyBank is currently pursuing actively a strategy to roll out enterprise risk management and to develop a robust risk management framework for the bank.
Since the transformation of Bolan Bank into Mybank, the bank has seen a spectacular turnaround. ROA, ROD and ROE all have risen outstandingly, moving from a negative zone in 2003 to an enviable positive in 2006. ROE declined slightly in 2006 and 2007, due to capital raised through a rights issue, offering 50 shares for every 100 shares and strict provisions requirement for NPLs by the state bank. The ROE growth in 2005 was especially spectacular because it came about in the face of an increase in the equity in 2005, again through a rights issue.
In FY06 deposits and total assets showed an increase of 49% and 54% respectively. PAT showed an increase of 80% in FY06 to come up to Rs 492 million from Rs 210.848 million in FY05. In FY06, non-interest income was nearly 50% of the net interest income at Rs 452 million. If a segment wise analysis is conducted, it can be seen that trading and sales gives the highest ROA of 5.69%, followed by corporate finance and then commercial banking. Retail banking, despite having the highest contribution in gross income, remains the laggard with a ROA of only 0.01%. This lacklustre performance by the retail banking has pulled down the ROA of Mybank as a whole.
In 2007, the downward trend in all earning assets ratio can mainly be attributed to the strict regulations of the State Bank for the NPLs, consequently depressing the PAT of the bank. The yield on the earning assets has increased steadily on the back of higher interest rate environment in Pakistan. The cost of funding the earning assets has also increased, thus squeezing the spread slightly in 2006. In 2006, the interest expensed has nearly doubled, while the interest income did not increase by that amount. The reason is a nearly 100% increase in the fixed deposits and 50% increase in savings deposits, while remunerative F.I deposits have also shown a manifold increase. On the other hand, the current account deposits have shown a decline.
In 2007, interest income declined in the wake of more than proportionate increase in cost of funding earning assets owing to a rise in KIBOR. Majority of the deposits generated from the wholesale and retail segment, followed by individuals and then the financial sector. The deposits from the financial sector have shown a tremendous increase of 114 times. This is just a depiction of the trend of lending to other financial institutions that the industry as a whole is following in FY06 as it entails lower risk as compared to that in retail segment.
If we consider the industry as a whole, a break up of deposits data reveals that there is a visible shift from saving deposits to fixed deposits during last couple of years. Though the saving deposits still holds largest share in total deposits in 2007 and marginally gained some share, the shift witnessed during last couple of years raised the share of fixed deposits substantially and brought it close to the share of saving deposits. Other than these two categories, there was not a significant change witnessed during last few quarters.
It is important to note that the non-remunerative deposits have been around one-fourth of the total deposits of the banking system since CY04. As far as the composition of the earning assets is concerned, lending to Financial Institutions nearly showed a 160% increase in FY06 to be Rs 4030 million, while the investments declined slightly. The amount of investments declined because of the loss in the revaluation of held for trading securities in consequent of rising political instability.
The maximum amount of securities held is T-Bills, while NIT units and other mutual fund units take the next place. Advances also increased by 50% in 2006 and more than 54% in 2007. All in all, the lending to Financial Institutions gained preference in the Earning assets pie. This increase is in lieu of decreased liquidity in the market, because of frequent mopping up of liquidity by the SBP. Lending to financial institutions in 2006 is through repo and call money lending with the favorite being repo transaction. This shift in the composition of the earning assets in favor of investments and lending to financial institutions is a trend that has been observed in the industry in FY07. The share of advances in total assets of the banking system dropped by 530 basis points during H1-CY07.
P/E ratios have improved over the years and in par with the market stabilizing between 10 to 11 for 2006 and 2005. The NPLs are contributed mostly by the textile sector, which accounts for 38.4% of the total NPLs for FY06. Agriculture's contribution follows next followed by wholesale and retail trade. The NPLs have declined in 2006 as compared to 2005. Equity has risen steadily over the years in a bid to comply with the minimum capital requirements of the SBP. The CAR in 2006 was 19.25%. Thus, bank's creditworthiness and perception is bound to increase with its increase in equity. The debt to asset ratio has shrunk to 82% from 90% in 2003.
In 2006, equity increased to Rs 3085 million showing an increase of 50%. In the same period the deposits have increased by 49%, while net assets have increased by 99%. This scenario clearly shows that the increase in assets has been funded nearly equally by debt and equity. Mybank is following the same trend as the industry. The bank has entered into an agreement with an external consultant for acquisition of a Basel-II financial risk management software and is pleased to report that the Basel-II capital framework is being actively pursued within the Bank. All efforts are being made to strengthen the risk management function within the bank and the bank is committed to ensure compliance to all timelines of the Basel-II framework road map issued by the State Bank of Pakistan and other guidelines in this regard being issued from time to time.
In the banking industry the deposits continued to record steady growth, and its share in assets funding remained around 75 percent in June 2007. Despite steady growth, the share of deposits in mounting assets of the banking system has seen a marginal decline since CY04, because of the fact that more and more assets are funded by either growing capital (which has been growing due to increasing minimum capital requirement) or by rising borrowings. The bank enjoys "A" (Single-A) rating for the medium to long term and "A-1" (A-One) rating for the short term with a stable outlook from the Pakistan Credit Rating Agency Limited (PACRA).
Earning asset to assets ratio has remained more or less consistent over the years. It is below the industry average showing that Mybank is flush with liquidity. Also this ratio reflects the potential that the bank has to expand. As we can see in the segment wise analysis of advances, individuals form a meager less than 2%. The highest share is held by wholesale and retail trade contributing 30% followed by textiles contributing 15.58%. However, interestingly the NPLs are contributed mostly by textiles sector.
Advances (net) for the industry after showing strong growth during CY03-06 (27.2 percent per annum), witnessed a small growth of 4.6 percent (or Rs 109.8 billion) during H1-CY07. Resultantly, the share of advances in total assets dropped by 530 basis points in H1-CY07; shrunk to 50.5 percent from 55.8 percent in CY06. In the same way, Mybank has shown an increase in the ADR till FY06.
SEGMENT WISE ANALYSIS
If we conduct a segment wise analysis, we can see that the income from Corporate Finance has increased by 26%, from trading and sales by 48%, from retail banking by 70% and from commercial banking by 164%. The lead contributor to gross income remained the retail banking, followed by trading and sales segment, whereas in net income trading and sales contributed the most, with retail banking being the last in all the segments showing that retail banking is the highest contributor to expenses. While the segment ROA has risen for all segments, it declined for retail banking depicting the influence of NPLs and provisions kept against them.
FUTURE OUTLOOK
The increase in interest expense that has outpaced the increase in the interest income looks certain to cause problems in the upcoming times, especially in the wake of tight monetary measures announced by the SBP. The minimum 5% interest to be given on PLS accounts will increase the interest expense. On the hand the move by the government to possibly increase the rates on the National Saving Certificates will cause the whole banking sector to increase the deposit rates, in order to prevent dis-intermediation. The bank will have to focus on consolidation and cost-cutting in order to increase its profitability. The allowance of 30% FSV benefit for the banks will favor the banking sector in the coming times. Profitability will show an increase and the banks will get some respite.
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FINANCIAL HIGHLIGHTS-MY BANK LIMITED
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ASSETS 2003 2004 2005 2006 2007
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Cash and Balances with treasury banks 1,251,900 1,683,390 1,410,398 1,990,052 2,613,835
Balances with other banks 362,035 592,397 404,735 1,222,089 280,497
Lending to Financial Institutions 1,523,476 1,096,290 1,533,503 4,030,887 1,567,626
Investments 1,929,251 1,937,287 3,252,736 2,961,220 11,601,143
ADVANCES 5,853,122 7,245,371 9,294,381 13,486,839 20,791,751
Other Assets 215,791 247,178 415,447.00 690,581 1,580,159.00
Operating Fixed Assets 576,335 594,746 772,148 2,036,225 2,080,341
Taxation recoverable 0 0 0
DEFERRED TAX ASSET 46,821 39,238 135,409 131,587 86,261.00
TOTAL ASSETS 11,758,731 13,435,897 17,218,757 26,549,480 40,601,613
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LIABILITIES 2003 2004 2005 2006 2007
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Bills Payable 314,820 271,358 266,152 225,322 895,616
Borrowings from Financial Institutions 1,272,059 474,933 1,339,662 1,624,470 2,796,478
Deposits and Other Accounts 9,005,641 10,922,515 12,856,615 19,169,226 30,153,164
subordinated loans
Liabilities against assets subject to financial lease
Other Liabilities 97,258 118,320 206,706 464,828 814,035
Deferred liabilities 0 0
TOTAL LIABILITIES 10,689,778 11,787,126 14,669,135 21,483,846 34,659,293
NET ASSETS 1,068,953 1,648,771 2,549,622 5,065,634 5,942,320
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REPRESENTED BY:
Share Capital 1,015,876 1,523,813 2,057,147 3,085,721 4,242,866
Reserves 84,496 101,222 156,072 254,649 324,005
Unappropriated Profit(Ret. Earnings) (8,008) 58,897 278,297 588,197 496,827
1,092,364 1,683,932 2,491,516 3,928,567 5,063,698
Surplus on Revaluation of Assets (23,411) (35,161) 58,106 1,137,067 878,622
1,068,953 1,648,771 2,549,622 5,065,634 5,942,320
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INCOME STATEMENT 2003 2004 2005 2006 2007
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Mark-up / Return/ Interest earned 508,799 552,144 1,026,000 1,685,810 2,907,075
Mark-up / Return/ Interest expensed 114,520 140,835 322,570 865,668 2,208,225
Net Mark-up / Interest Income 394,279 411,309 703,430 820,142 698,850
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Provision against consumer loans 136,610 26,141 200,152 31,231
Provision against non-performing loans and advances - net 4,125 648,425
Provision / (reversal) for diminution in value of investmen
Bad debts written of directly 2,534 6,541 2,676
136,610 30,266 202,686 37,772 651,101
Net markup/ return / interest income after provisions 257,669 381,043 500,744 782,370 47,749
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NON MARK-UP / INTEREST INCOME
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Fee, commission and brokerage income 40,808 45,297 68,370 115,544 140,270
Dividend Income/ Gain on Sale of Investments 9,688 62,040 138,094 151,691
Income from dealing in foreign currencies 9,105 13,316 15,516 37,194 67,163
Gain on Sale of securities 27,429 32,257 49,927 489,123
Unrealized Gain/loss on revaluation of investments (held fo 0.00 40,993.00
Other Income 35,733 39,653 71,548 70,486 62,313
Total non mark-up / return / interest income 122,763 98,266 249,731 452,238 910,560
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380,432 479,309 750,475 1,234,608 958,309
NPL 855,066.00 956,324.00 1,313,237.00 1,011,020.00
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NON - MARKUP INTEREST EXPENSES
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Administrative expenses 372,711 381,231.00 530,997.00 587,525.00 722,553
Other Provisions / write offs/ (reversals) 14,076 902 1,000 2,183
Other Charges 1,629.00 8,156 7,728.00 23,023.00 8,485
Total Non markup Interest expenses 374,340 403,463 539,627 611,548 733,221
Extraordinary Items 0.00
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PROFIT BEFORE TAXATION 6,092 75,846 210,848 623,060 225,088
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TAXATION 26,231 (7,785) (63,402) 130,172 (115,231)
PROFIT AFTER TAXATION (20,139) 83,631 274,250 492,888 340,319
Basic Earnings per Share (0.20) 0.82 1.54 1.89 0.87
Average price per share 8.43 15.05 16.40 20.20 26.26
FINANCIAL RATIOS
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LIQUIDITY 2003 2004 2005 2006 2007
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Earnings Assets to Assets 82.22% 80.91% 84.13% 81.74% 84.33%
Yield on earning assets 5.26% 5.08% 7.08% 7.77% 8.49%
Advance to deposits 64.99% 66.33% 72.29% 70.36% 68.95%
Cost of Funding Earning assets 1.18% 1.30% 2.23% 3.99% 6.45%
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SOLVENCY 2003 2004 2005 2006 2007
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Equity to Assets 9.09% 12.27% 14.81% 19.08% 14.64%
Equity to Deposits 11.87% 15.10% 19.83% 26.43% 19.71%
Earning Assets to Deposits 107.35% 99.53% 112.67% 113.21% 113.56%
EARNING 2003 2004 2005 2006 2007
Return on Assets -0.17% 0.62% 1.59% 1.86% 0.84%
Return on Equity -1.88% 5.07% 10.76% 9.73% 5.73%
Return on Deposits -0.224% 0.766% 2.133% 2.571% 1.129%
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MARKET VALUE RATIO 2003 2004 2005 2006 2007
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Price-Earnings ratio 42.15 18.35 10.65 10.69 30.18
Market-Book value ratio 1.920 1.080 1.436 1.042 1.154
Weighted avg. no. of shares outstanding 101587 118356 223226 261229 261229
DEBT MANAGEMENT 2003 2004 2005 2006 2007
Debt to Equity 10 8 6 5 5
Debt to Asset 90.909% 89.213% 86.304% 82.601% 83.607%
Deposits time Capital 8.42 8.04 6.12 5.03 5.48
Capital(avg. of asset and liabilities) 1068953 1358862 2099196.5 3807628 5503977
Interest Margin 22.51% 25.51% 31.44% 51.35% 75.96%
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