Formed by a string of mergers and acquisitions, Summit Bank Limited kicked off the first quarter of 2013 on a grim note. With growth in earning assets acutely angled towards investments, the top line of SMBL couldn continue its upward journey.
However, SMBL is not the only bank that boasted a sluggish top line in 1QCY13. Low interest rates and sluggish private sector borrowing gave tough time to even the largest of the banks in the country.
During 1QCY13, SMBL witnessed a remarkable improvement in its low cost deposits (see CASA ratio). Conversely, fixed deposits took a dip of seven percent year-on-year. This shows the commitment of bank towards replacing big ticket deposits with low-cost small ticket deposits.
Unfortunately, the drive towards low-cost deposits couldn give much support to the net interest income (NII) of SMBL in 1QCY13. Perhaps the weak top line and increase in the floor rate of saving deposits eclipsed the NII growth.
Despite some downtick, mark-up expenses kept shadowing the gross spread ratio of SMBL in 1QCY13 which is already the lowest among the similar sized peers.
According to a bank source, high mark-up expense owes to high cost of borrowing (interbank and SBP borrowing). In future, the bank aims to restrict its borrowing by launching innovative low-cost deposit products. He further told that the bank also plans to tap the Islamic banking industry in the next few months.
On the assets front, SMBLs prudent lending strategy of late and its continuous efforts for the recovery of NPLs bore fruit in the 1QCY13 as the bank was able to cut down its infection ratio. Besides, it allowed the bank to reverse the higher provisions on NPLs charged earlier. During the period, the bank also availed SBP exemption of Rs1064 million against NPLs which further kept provisioning expense in check.
Lower provisioning expenses coupled with a notable growth in non mark-up income tended to provide some respite to the bottom line. But higher administrative expenses hampered the growth.
Currently, the bank, in order to meet its minimum capital requirement (MCR), issued preference shares worth Rs2.15 billion. Besides, the bank also plans to inject capital of Rs 5 billion by the end of 2013.
With improved capital base, how cautiously the bank enhances its asset base without aggravating its NPLs would be the real challenge facing SMBL.
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Summit Bank Limited
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Rs (mn) 1QCY13 1QCY12 Chg
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Markup Earned 2,573 2,799 -8%
Markup Expenses 2,480 2,672 -7%
Net Markup Income 94 127 -26%
Provisioning/(Reveral) 44 109 -59%
Net Markup Income after provision 138 236 -42%
Non Mark-up/Interest Income 353 292 21%
Operating Revenues 491 529 -7%
Non Mark-up/Interest Expenses 1,042 994 5%
Profit / (Loss) Before Taxation (539) (466) 16%
Taxation 156 96 62%
Profit After Taxation (694) (562) 24%
EPS (Rs.) (0.64) (0.52)
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Source: Company Accounts
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SMBL - Key ratios
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Indicators 1QCY13 1QCY12
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Infection Ratio 42% 45%
Coverage Ratio 55% 53%
Spread Ratio 4% 5%
Capital Ratio 1% 2%
IDR 59% 51%
ADR 53% 54%
CASA 60% 52%
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Source: Company Accounts
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