INTRODUCTION: Sindh Bank was incorporated in 1995 as a provincial bank by the Sindh Assembly; but, it could not take off. In 2008, the issue was taken up by Sindh Government with the State Bank of Pakistan for granting them a license for a scheduled commercial bank to operate all over the country instead of being a provincial bank restricted to Sindh Province only. The SBP provided license to the bank in 2010.
The Bank commenced operations with the inauguration of its first branch at Naudero on December 26, 2010. With SBL, the government aimed to execute its vision to spur economic activity enhancing small farmers' access to institutional credit in an effort to boost agricultural output specifically in Sindh.
SBL also aspires to promote SME sector by providing unique financial solutions to small and medium entrepreneurs and empower women and providing banking in the untapped areas in an effort to trigger financial inclusion in the country. Two years down the road, the bank's branch network stands at 160 branches in 80 cities across Pakistan with Sindh region being the hub where the bank has 100 branches while it has 48 branches in Punjab, 6 in Balochistan and 5 in KP.
SNAPSHOT OF RECENT PERFORMANCE (1QCY13) The branches that were opened in the last quarter of CY12 became fully operational in CY13. The network expansion yielded positive results and the number of bank accounts grew from mere 16,178 in 1QCY12 to 94,549 in 1QCY13. Resultantly, deposits also boosted by 65 percent year-on-year in 1QCY13.
Out of the total deposit base, government's share is mere 27.2 percent with the rest being held by the general public reflecting their confidence in the bank. However, with falling government deposits, CASA ratio dropped from 81 percent in 1QCY12 to 77 percent in 1QCY13. Triggered by 91 percent growth in earning assets mainly coming on the heels of advances growth, SBL's top line improved by 60 percent year-on-year in 1QCY13 despite low discount rate backdrop.
Due to fall in low-cost deposits, mark-up expense grew by 71 percent plopping down spread ratio to 27 percent from 31 percent in 1QCY12. Until last year, the bank had no toxic asset on its balance sheet. During 1QCY13, the bank placed Rs 450 million under the non-performing status. The bank availed the forced sale value benefit of the eligible collateral held against NPLs and hence booked no provisioning charge for the period. Had the bank not availed the forced sale benefit, the provision against the non-performing advances would have been higher by Rs 112.131 million.
During the year, provisioning expense also grew tremendously but it's because of diminution in the value of investments rather than non-performing loans. What gave bottom line a real booster was a growth of 189 percent in the non-mark-up income. This came on the back of handsome dividend income and fee, commission and brokerage income earned during the year. The profit-after-tax grew by 12 percent year-on-year during 1QCY13 which seems fairly reasonable amid low interest rates and muted private sector credit appetite.
Summing up Past Performance (CY11-CY12) With over two-fold growth in its earning assets, the top line of the bank boasted a remarkable growth of 66 percent in CY12. This appears to be quite a notable accomplishment for SBL where its peers' top line is battered by dropping interest rates.
However, the growth in top line is mainly propelled by the interest income earned on investments. Investing in government securities remained an industry-wide trend and SBL also succumbed to it with its IDR tallying 199 percent as of CY12. However, Bilal Sheikh, CEO, Sindh Bank, told BR-Research that since most of the investments of Sindh Bank are financed by Repo borrowings from SBP, taking off the portion of borrowings from investments, the net IDR clocks in at 45 percent in CY12 as against 56 percent in CY11.
Conversely, in case of advances, SBL didn't jump the bandwagon. While the entire banking sector shied away from advances, as evident by a stumpy growth of 12 percent in the cumulative advances of the banking sector in CY12, advances of SBL grew by a staggering 166 percent year-on-year in CY12. Nevertheless, it should be noted that a hefty proportion of loans advanced by SBL constitute commodity financing provided to the Food Department of Sindh Government which are inherently risk-free advances. Such risk-free lending avenues enable SBL to raise the proportion of its advances amid other banks deploying a conservative lending approach.
Other lending activities include loans mainly advanced to sugar industry against pledging the commodity and to cement and steel industries. Besides, the bank disbursed an agricultural credit of Rs 537 million to 1,431 farmers for farm and non-farm activities and in this way played a laudable role in financial inclusion of the un-banked. Sheikh proudly divulged that the bank has not advanced any loan to any politician. Sheikh told that "All the advances of SBL are secured by either government guarantees or other liquid securities."
As of December 2012, the balance sheet of SBL was clean from NPLs. Sheikh informed that the bank has taken two major initiatives to avoid bad debts: 1. Sindh Bank will not advance any long-term loan on stand-alone basis. Rather, the bank will opt for syndication avenues, according to its size.
2. All the loans of the bank will either be secured by sugar/cotton pledge or land/property located at high-class areas of Clifton/Defence. During the year, deposits of SBL witnessed a not-so-impressive growth of 34 percent despite a huge branch network expansion. However, Sheikh disclosed that the mainstream branch expansion took place during 4QCY12; hence its impact on deposits will be visible from CY13 onwards.
Another factor worth mentioning is that the share of government in total deposits plunged from 78 percent in CY11 to 30 percent in CY12. Conversely, the share of general public grew to 70 percent which bears a testament to general public's confidence in the bank.
However, with the shriveling government deposits, the CASA of SBL dropped. Sheikh told that in order to carry out its various projects via Sindh Bank, government maintains current accounts with the bank. As the respective disbursements take place from the account, the proportion of government deposits shrinks with its direct impact on CASA. However, the bank is attracting low-cost deposits from public through its lucrative deposit schemes.
With the expansion of its branch network by 110 branches over the year, administrative expenses of SBL showed a massive growth, as evident by a jump in its intermediation cost. This also took its toll on the bottom line of the bank which could yield a stumpy 19 percent growth despite a staggering growth in its top line. With an EPS of Re0.89, the BoD approved a cash dividend of Re0.60 per share (on the basis of CY11 accounts), paid to the sole owner of the bank, ie, government of Sindh.
FUTURE PROSPECTS Going forward, SBL aims to enhance its branch network by another 40 branches to improve its market reach for general banking operations. With this, the bank plans to increase general public's share in its deposit base by offering new deposit schemes. The bank wishes to excel in banking through mobile phones and maintains its lead in agro-loans and SME credit. With the re-entry into a new IMF programme, the long-term outlook for banking sector also seems positive. Discount rate is expected to inch up which will liberate the squeezed margins of the banks.
Source: Company Accounts
Source: Company Accounts
Copyright Business Recorder, 2013