UBL must be doing a few things right. It is after all, the only commercial bank amongst the top four this season, to have reported growth in both topline and bottomline. And that is nothing short of an achievement, considering the challenging operating environment, in which even a single digit drop in profits is considered a decent job.
The success recipe is a known one and UBL executed it well enough. Reduced cost of deposits, improved deposit mix, significant non mark-up income contribution, and reduced provisioning expenses, all continued to contribute to profits. The banks balance sheet has grown steadily over 12 percent and now stands at over Rs1.6 trillion.
Investments, understandably form the bulk of asset mix and kept growing at a high rate 11 percent increase over December 2015. The IDR stood at 67 percent, virtually at yesteryear level. Bulk of the topline mark-up income growth came at the back of investments, primarily in government securities. Over two-third of mark-up income was driven from investments held for maturity and for sale.
With economic activities picking up, advances have finally started to gather more pace. Having remained dull for quite some time, UBL also managed to grow its advances in double digits over 2015, and now stand at Rs537.7 billion. The ADR remained flattish at 43 percent. UBLs loan quality, which was never a great concern anyways, has also improved, as the infection ratio went down. The NPLs remain adequately provided for too.
UBL kept up with the industry growth rate in deposits which have now crossed Rs1.2 trillion. Importantly, the deposits have been added in the right direction, as the CASA improved further, bringing down the cost of deposits. Improving the deposit mix becomes even more crucial in times of thin spreads and low yields on earning assets.
The non-core income continues to support the bottomline, as capital gains and fee and commissions continue to surge. That, bulk of non-core income came at the back of more dependable cross-selling and fee and commission income, with lesser than usual reliance on one-off events such as gain on sale of securities. UBL also announced a final cash dividend of Rs4/share, taking the CY16 payout to Rs13/share.
Things look rosier for the banking sector and UBL appears well poised to take advantage of genuine credit demand, whenever it arises more consistently. The bank has a healthy balance sheet, much-improved deposit base and strong cross-selling business. Should the interest rates start picking up, UBL will sure cash on the opportunity to do some more core banking profits will follow.