National Bank of Pakistan (NBP) has ended CY20 on a grand note, with the after-tax profits almost doubling from last year to Rs30.5 billion. Considering that the performance has come when most of the year was marred by pandemic, makes it more special. The improvement in NIMs trickled down well to the bottom line, aided by the exemplary administrative cost control shown by the state-owned commercial bank.

The NII soared by a substantial 45 percent year-on-year as the spreads enhanced during the period, showing results of effective duration management and asset repricing. The average interest rates remained lower year-on-year, but the average volumetric asset growth more than offset the dip in rates. The cost of deposits went lower, as NBP maintained its focus on low-cost deposits.

The non-core income stayed flattish year-on-year, which is nothing short of an achievement, considering the hardships of 2020. There was an understandable dip in fee income and dividend income as the economic activities were significantly lower particularly in the first half, and a lot of businesses refrained from high payouts. But that was offset by the gain on sale of securities, which increased by 3.65 times year-on-year, as the investment portfolio offered opportunities to capitalize gains. The bank management in its conference call with the analysts has maintained that there are substantial capital gains on the investment portfolio to be had in the future as well.

What came as a refreshing surprise was a year-on-year dip in operating expenses – something that is not usually associated with state-owned entities. Lower cost and stable total income led to a much-improved cost to income ratio for CY20 of 45 percent, down nearly 16 percentage points from CY19.

There has been a visible surge in Non-Performing Loans (NPLs) as NBP’s loan book exposure, being a state-owned bank, is different from similar sized private commercial banks. The NPLs went up, prompting the need for adequate specific provisioning. The provision expense more than doubled year-on-year to cover for the surge in infection ratio, which reached 14.8 percent. The coverage ratio continues to be north of 90 percent, which gives management confidence in terms of IFRS 9 implementation.

The deposit base expanded by 10 percent over December 2019 to Rs2.4 trillion, with the mix further improving by higher growth in current and saving accounts. The CASA ratio stands further improved at 83.8 percent. The growth in advances remained understandably muted owing to the challenging conditions, which took the ADR under 50 percent at the end of 2020.

NBP refrained from dividend payout unlike its peers in the last quarter of CY20. With the capital adequacy ratio significantly improved from last year at nearly 20 percent, the next payout should not be too far away.