UBL's has kept up with the dividend stream as it announced another Rs3/share interim cash dividend, with its financial results of 9MCY17. The topline grew a bit, bottomline slid. But the real story is in the continuous balance sheet expansion, as the asset base grew by a considerable 22 percent over December 2016.
UBL's now-much-cleaner loan book expanded appreciably by 11 percent over December 2016, mainly led by strong domestic operations. A modest topline growth is a just result considering the interest rates have remained depressed and the spreads are further squeezed. All this while, the real meat was provided by a high 35 percent growth in investments over December 2016.
No marks for guessing that short term government securities have long been the preferred parking lot for liquidity. It makes all the sense too when Rs548 billion invested in the PIBs are offering a mouth watering 8.8 percent yield. While much has been said of strong advances growth in the industry, it is still the investments in the government papers that continue to lead the way. That nearly two-third of markup earned comes from investment, and just the one-third from advances, tells the preferences.
The ADR continues to hover in the mid 40s, whereas the IDR is now touching 90 percent. The deposit growth continues to be strong, especially in the domestic current category. That is what primarily fueled the topline growth. The domestic current to total deposit ratio has also improved from 38 percent to 40 percent. Adding the right kind of deposit has been time and again termed as the key focus area by the management, and from the looks of it, the efforts seem to have yielded good results so far.
The effort is also reflected in reduced cost of deposits from 2.7 percent in 9MCY6 to 2.6 percent now. The growth in administrative expenses, however, seems to be an area of concern, which the bank has put down to raised personnel cost, escalation in rents, and capacity building. The cost to income ratio as a result slightly deteriorated during the period to stand at 44.8 percent.
UBL now boasts of a much cleaner loan book, which is adequately provided for. Interest rates will not forever remain depressed. But investments are likely to continue being the asset of choice, no matter, how briskly the pace gathers around CPEC and private sector demand.