UBL announced its 1HCY17 financial results yesterday, and kept up with the dividend stream, announcing Rs3/share as interim cash dividend. The top line stayed flat, whereas bottom-line slid year-on-year, but the balance sheet witnessed sizeable growth over December 2016.

UBL’s loan book expanded appreciably by nearly 11 percent over December 2016, as a strong build up was seen in domestic operations which grew by 15 percent over December 2016. Flattish top line growth is understandable despite an expanded earning asset base, as spreads have thinned and yields have dried up, in a low interest rate scenario.

The real deal was another round of massive growth in investments, after a period of relatively modest growth. Investments, primarily in government securities, soared by 24 percent over December 2016. Investments in treasury bills made a return of sorts, having almost trebled over December 2016. No marks for guessing that government securities continue to be the favourable asset choice, as they have yielded UBL approximately 8.8 percent during the period. Not such a bad avenue to have and that too, risk free. That nearly two-third of mark-up earned comes from investment, and just the one-third from advances, tells the preferences.

The bank recorded net reversal during the period versus heavy provision charge in the same period last year. The NPLs too have continued to slide, evident by improved asset quality. On the liability side, UBL’s domestic deposit crossed the magic figure of Rs1 trillion. Much of the deposit growth has been directed towards adding low cost current accounts, and it shows on the reduced cost of deposits.

The bank has continued the good work to reduce cost of deposits from 2.7 percent in 1HCY6 to 2.6 percent now. Bigger improvement was seen in domestic cost of deposit which came down from 2.9 percent in 1HCY16 to 2.75 percent. Overall, the deposits grew by 6.5 percent over December 2016. UBL has also done tremendously well to keep a lid on administrative expenses, further improving the cost to income ratio.

With the economic indicators on the mend, things are looking good for the banking industry and UBL seems well poised to cash in. The healthy balance sheet, reduced cost of deposits, and tightened expenses, all provide UBL with a chance further consolidate its position.