National Bank of Pakistan (NBP) defied all odds and posted a massive 60 percent year-on-year growth in after-tax profits for 9MCY20. The strong markup income growth, supplemented by a decent rise in non-core income, and good control over administrative expenses all contributed towards the stellar profits.

NBP has been matching the peers in performance despite carrying all the ills that come along with being a state-owned entity, which in itself is praiseworthy. The bank’s asset base shrunk by 11 percent over December 2019, which was primarily due to the bank reducing its money market borrowings by a whooping Rs329 billion during the period, which was much in line with liquidity position and funding requirements, during the period, most of which was marred by the pandemic.

The reprofiling of the asset mix has continued throughout the period in line with the realities of the changing interest rate dynamics. The investment portfolio remains diversified, largely in favor of risk-free government securities. The investment portfolio stood at Rs1338 billion as of September 30, 2020, down 5 percent over December 2019. The average investments during 9MCY19 were up by 31 percent year-on-year at Rs1394 billion, which partly explains the strong markup income growth, even as the interest rates averaged significantly lower.

The average advances during the period grew by a rather modest 3 percent at Rs950 billion, and understandably so, given the muted demand for fresh loans, as the economic activities were under stress due to the pandemic. The advances generated Rs78 billion in markup income, almost similar on year-on-year basis. The advances were down 8 percent over December 2019 at Rs1060.5 billion, the bulk of which is in local currency.

The pandemic had an impact on the asset quality which came under pressure, leading to 16 percent year-on-year rise in NPLs. NBP remained prudent and provided for the NPLs adequately, making room for general and specific provisions. The coverage ratio at 97 percent is as good as any in the industry.

The operating expenses were kept in check in line with the inflationary trends. The non-markup income continued to provide an able hand, as gain on sale of securities more than offset the dip in fee commission and dividend income, which slowed down owing to the pandemic. The cost to income ratio improved massively from 52 percent in the same period last year to 41.8 percent for 9MCY20. NBP has managed to sail smoothly in hard times and should be able to pounce on the opportunities that will be presented as the economic activities revive.