The biggest lender is getting even bigger. Gearing up in the last quarter to increase its deposits base by Rs73 billion (11%), National Bank of Pakistan outperformed the industry average in 2009 by registering an annual deposit growth of 16 percent.
But, unlike the prudence of its peers, NBPs cost of funds rose substantially by 170 basis points to 5.6 percent as its deposits mix tilted towards the costly term deposits. Nonetheless, the lender managed to increase its advance-to-deposit ratio sharply over the course of years.
From an ADR of 63 percent in 2007, when peers boasted a ratio of around 75-80 percent, NBP jacked up its ADR to 73 percent by 2009. And, this is without treating Rs21 billion worth of unquoted TFCs as advances, which if classified as loans would improve the ADR to 76 percent.
But this superb growth of 20 percent in advances, including the loans doled out to the power sector, was dampened by a high number of toxic assets in the portfolio.
Being under the influence of the government, the banks less efficient risk management is visible by its soaring gross infection ratio which rose to 13.8 percent, compared with 8-10 percent endured by its peers.
However, the growth in NBPs gross infection ratio, 103 bps in 2009, was better than its peers as the major damage had been done in the previous years. In 2009 the banks NPLs increased by Rs14.5 billion (20%), which, though high in absolute terms is diluted by similar growth in advances.
Aside from, infected loans, costly funds diluted the impact of growth in NBPs advances. Despite 28 percent growth in mark-up earned, 65 percent increase in interest expensed during the period reduced the net mark-up income growth to a mere 4 percent.
Had the bank not benefited partially from the enhanced FSV (by Rs2-2.5 billion) on reversal in provisioning, its net off provisioned mark-up would have been below the previous years level.
One time capital gain booked on the unwinding of NIT-LOC fund helped the bank post a 15 percent growth in non-core income. The capital gain of Rs3.9 billion (post-tax EPS impact of Rs3.25) enabled NBP to offset an otherwise 10 percent fall in head of fee commission and other income.
Yet, the gain could not rescue the fall in pre-tax profits. In the quest of higher deposits, NBP lagged far behind its peers in terms of operational efficiency. The state-owned lender saw its operating expenses jump by a massive 21 percent, compared with 8 and 5 percent rise in that of second and third biggest banks respectively in 2009.
The banks bottom line was eventually helped by lower tax rates (19 percent as against 33 percent in 2008) owing to lesser tax on capital gains booked on the NIT-LOC holding and due to the Rs2.3 billion worth of tax credit booked in the prior years.
But what made investors excited on Thursday, wasn the banks earnings, which in fact, were in line with market expectations. NBPs share price that shot up by 4.8 percent yesterday actually got a boost from a surprisingly higher cash and stock dividend announced.
Higher earnings from capital gains enabled the banks board to help the cash starved government by announcing a cash dividend of Rs7.5 per share - beating the market expectation by a quarter.
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National Bank Profit and Loss accounts
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Rs (mn) 2009 2008 Growth
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Mark-up earned 78,125 61,152 28%
Mark-up expensed (39,448) (23,878) 65%
Net mark-up Income 38,677 37,274 4%
Provisioning (11,820) (11,010) 7%
Net mark-up income after provisions 26,856 26,264 2%
Non-markup income 19,109 16,683 15%
Operating revenues 57,786 53,957 7%
Non-markup expenses (23,767) (19,698) 21%
Profit before taxation 22,199 23,249 -5%
Profit after taxation 18,009 15,684 15%
EPS (Rs) 16.82 14.57
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Source: KSE Announcement
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