National Bank of Pakistan

National Bank of Pakistan, the largest commercial bank in Pakistan, has announced nearly a flat profit for the year ended December 2010, well above the market expectations.
NBP was expected to record lower profits in 2010 on the back of high base effect arising from the one-off gains booked in 2009. One time capital gain booked on the acquisition of NIT-LOC shares, along with lower tax rates, helped lift the companys bottom-line massively in the 4QCY09.
However, growth in net mark income, along with lower provision and higher other income, helped the bank mitigate the negative impact of higher base effect on the companys bottom-line growth.
Aided by the growing investment portfolio in treasury securities, NBP amassed a 13.5 percent gain in mark-up earned. This can be gauged from the fact that the banks IDR (investment to deposit ratio) jumped to 36 percent in CY10 as against 30 percent a year earlier.
At the same time, the ADR fell by nearly 8 percentage points to around 57 percent. Amid high yields on T-bills, low ADR is now not a cause of concern for commercial banks as they are utilising their funds in exchange for a good return on risk free and liquid government papers.
The banks CASA ratio inched up to 62 percent in CY10 from around 56 percent a year ago, but growth in overall deposits, which surged by around 14 percent to Rs 832 billion, lifted the banks interest expense by around 12 percent.
Non-interest income fell by 7 percent, year-on-year, in CY10, primarily, on the heels of the Rs3.9 billion capital gain on redemption of NIT units in CY09. On top of that, the bank saw a substantial decline in its income from dealing in foreign currencies and reduction in dividend income in 2010. However, a slight improvement in revenues from the fee business and a massive growth in other income protected the banks non interest income from a greater fall.
Although the company has not made its CY10 accounts public yet, on the back of damages caused due to floods, rise in interest rate, perennial inflationary pressure and fragile economic environment, NBPs NPLs are expected to have increased during CY10.
Besides, administrative expenses increased massively by 16 percent to Rs26 billion in 2010, on account of higher inflationary pressures, crossing average inflation rate of 14 during the year, highlighting the need for more robust measures to curb overhead expenses.
With Kibor on the higher sides that averaged around 13.8 percent during the first two month of CY11 as against 12.32 percent same period a year earlier, lending institutions will continue to see growth in interest income. Since benefits come at a cost, banks will have to pay a price down the line in the form of higher provisions.

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NBP P&L

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(Rs mn)                        CY10        CY09         chg

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Mark-up earned              88,472      77,948        13.5%

Mark-up expenses           (45,250)    (40,489)       11.8%

Net Mark-up Income          43,222      37,459        15.4%

Provisioning                (9,969)    (11,669)      -14.6%

Net Mark-up income          33,253      25,790        28.9%

 after provisions

Non Mark-up income          17,632      19,025        -7.3%

Operating revenues          60,854      56,484         7.7%

Non Mark-up expenses       (26,469)    (23,514)       12.6%

Profit before taxation      24,416      21,301        14.6%

Profit after taxation       17,563      17,561         0.0%

EPS (Rs)                     13.05       13.05         0.0%

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Source: Company accounts