Falling deposits, bad loans major concern for UBLs board

UBLs liability team must shift gears soon; the bank lost its market share in total deposits by 149 basis points in the last quarter to 10.9 percent with deposits down by 11 percent. However, it managed to significantly reduce average yield on interest bearing liabilities by 80 bps to 5 percent at the time of shrinking revenues from core business, as well as a fall in fees, commissions and corporate finance earnings.
The bank not only managed to reduce its cost on time liabilities but also enhanced its share in demand liabilities by 2 percent to 65 percent. On the assets side, things remained mixed as well. Although, UBLs total advances declined by 3 percent, its advance-to-deposits ratio increased by 649 bps to 84 percent in the last quarter.
With its loan-mix gradually tilting towards the high-yielding commercial segment, by grabbing the share of corporate banking, UBL managed to improve its overall yield on advances. Yields have risen by 1 percent to 13.1 percent since the start of this year.
But on investments front, things were damp, in line with the overall industry trend, with banks share and return on investments remained unchanged at 11 percent for the last nine months, owing to higher concentration in government papers. The banks yield on earning-assets fell 30 bps to 11.7 percent in the last quarter.
By virtue of higher spreads, despite the decline in assets base, the bank managed to register a year-on-year growth of 16 percent in its core income during nine months ending September. Although, UBL managed to significantly reduce its provisioning on quarterly basis, to the likes of industry, it was much higher than last year. Thus, net of provisions, mark-up earnings eased by 13 percent in 9MCY09.
The bank might have over provisioned itself against bad debts in the second quarter as despite a fall in new provisioning; UBLs infectious ratio deteriorated by 120 bps to 10 percent in the last quarter. This implies a double whammy for UBL - falling deposits base amid high bad debts - which needs immediate attention of the management.

========================================================================

UBL Profit and Loss accounts

========================================================================

Rs (mn)                 3QCY09  3QCY08  Growth   9MCY09   9MCY08  Growth

------------------------------------------------------------------------

Mark-up  earned         14,668  13,816      6%   46,528   36,986     26%

Mark-up  expensed       -6,352  -6,209      2%  -22,339  -16,163     38%

Net mark-up Income       8,315   7,608      9%   24,189   20,823     16%

Provisioning            -2,691  -1,339    101%   -9,395   -3,883    142%

Net mark-up income

 after provision         5,624   6,269    -10%   14,795   16,941    -13%

Non-markup  income       1,946   2,853    -32%    7,965    8,887    -10%

Operating revenues      10,261  10,461     -2%   32,155   29,710      8%

Non-markup  expenses    -4,387  -4,282      2%  -12,808  -12,090      6%

Profit before taxation   3,183   4,841    -34%    9,952   13,737    -28%

Profit after taxation    2,080   3,238    -36%    6,367    8,831    -28%

EPS                       1.87    2.91             5.72     7.94

========================================================================