With the SBP tightening its noose around the banking sector, nearly all the industry players - big or small - seem battening down the hatches. However, for small banks like NIB, the current economic backdrop appears more troublesome, necessitating additional efforts.
Whereas the bigger banks are busy in lazy banking by dabbling in government securities, NIB with high cost of funds, cannot afford to follow the stream. In order to overcome its cost, private sector lending is an unavoidable chore for NIB and the first quarterly result shows that NIB is doing so quite efficiently.
High year-on-year growth in NIBs advance-to-deposit ratio (ADR) in the first quarter of CY13 bears witness to its strengthening foothold in private sector credit. However, the factor worth admiration is the banks ability to cut back its non-performing loans (NPLs) by six percent year-on-year despite a 12 percent year-on-year rise in its advances.
This is because of NIBs prudent credit mix which mainly comprises blue chip corporate customers with a clean track record and public sector enterprises against government guarantees. The bank is also undertaking consumer lending and SME financing but with a special emphasis on security and collectability.
Despite a nine percent year-on-year growth in its earning assets and that with mainstream growth coming on the heels of advances, the dropping discount rate cast a shadow on top line growth.
However, NIB didn let weak top line growth spoil its bottom line. By smartly managing its deposit mix, NIB was able to keep a check on its mark-up expenses despite deposit growth. Hats off to a remarkable boom in its low cost deposits (see CASA ratio) during 1QCY13.
Another support to bottom line came on the back of reversal in provisioning expenses owing to a noticeable drop in its NPLs (see infection ratio).
The earnings per share, though still small, also witnessed a massive turnaround. The first quarterly result of NIB Bank speaks volumes of the ability of a small bank to keep itself profitable in difficult times. The learning from NIB is to focus on key growth drivers i.e. mobilise low cost deposits, ensure proactive risk management and work on accelerated bad debt recovery efforts.
With the banks instructed to pay at least minimum profit on the average balance of saving deposits instead of minimum balance, NIBs cost of deposits might raise its head again. However, given stellar performances exhibited in 1QCY13, NIB has convinced that it can navigate through thorny course.
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Soneri Bank Limited
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1QCY13 1QCY12
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Infection Ratio 45% 54%
Coverage Ratio 72% 69%
Spread Ratio 26% 17%
Capital Ratio 8% 8%
IDR 83% 81%
ADR 84% 78%
CASA 75.8% 65.8%
ROA 0.3% -0.1%
ROE 4% -1%
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Source: Company Accounts
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NIB Bank Limited
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(Rs mn) Chg 1QCY13 1QCY12
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Markup Earned 2% 3,429 3,372
Markup Expenses -9% 2,539 2,790
Net Markup Income 53% 890 583
Provisioning 85100% 419 0.49
Net Markup Income
after provisions 124% 1,309 583
Non Mark-up/Interest Income -11% 531 593
Operating Revenues 56% 1,840 1,177
Non Mark-up/Interest Expenses 1% 1,291 1,275
Profit Before Taxation 549 (98)
Taxation -25% 35 47
Profit After Taxation 514 (145)
EPS (Rs.) 0.05 (0.01)
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Source: Company Accounts
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