UBL going great guns

Come rain or sunshine, the top five big banks in Pakistan reap hefty returns to shareholders. United Bank Limited (UBL), the third largest commercial bank in Pakistan, cheered investors last week after it recorded a jump of 29 percent in its profits in the first half of the calendar year. Growth in assets complimented the bank with a 16 percent jump in net mark-up income. Following the crowd, UBL has increased its stake in treasury securities considerably during the past one and a half years. This is clear from its investment portfolio, which stood at around Rs269 billion at the end of 1HCY11; showing a jump of 20 percent in the first six months of CY11 and 59 percent from the investment portfolio of Rs169 billion maintained at the end of 1HCY10. The passion for investments has lifted the banks IDR by four percentage points to 45 percent in the first six months of CY11. However, the bank remained nonchalant on the advances front, since the level of net advances on the banks balance sheet stayed constant in the first six months of CY11. UBLs advances had already fallen by six percent in CY10. The level of total deposits in the banks vaults rose to Rs593 billion from Rs550 billion at the end of December 2010; a growth of eight percent. This was slightly lower than the industrys (all commercial banks) average growth rate of nine percent. As the bank successfully garnered fresh low-cost deposits, the bank CASA ratio improved to 68 percent from 66.5 percent in the first six months of CY11. However, UBLs share of low cost deposits pales in comparison to that of MCB, which has maintained its CASA ratio at 79 percent. The bank expensed out rupees five billion in the form of provisioning expense; an increase of 20 percent compared to the same period a year earlier. This is primarily due to aging of non-performing assets. UBLs non-performing assets increased by six percent in the first six months of CY11 while this increase stood at 24 percent for CY10. As a result, the banks infection ratio inched up by around one percentage point to 14 percent in 1HCY11. At this level, the banks infection ratio is higher compared to rivals in the industry that carry a single-digit infection ratio. The growth in dividend income, income from dealing in foreign currencies and other income also bolstered the banks non-mark-up income. On the other hand, a hike in administrative costs translated into higher expenses, but given a high inflationary environment, an increase of 14 percent in administrative expenses appears reasonable.

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United Bank Limited
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Rs (mn)                               1HCY11    1HCY10       chg
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Mark-up earned                         34058     28480       20%
Mark-up expensed                      (14747)   (11877)      24%
Net mark-up income                     19311     16603       16%
Provisioning                           (4923)    (4094)      20%
Net mark-up income after provisions    14389     12510       15%
Other income                            5899      4728       25%
Operating revenues                     25210     21332       18%
Other expenses                        (10058)    (8673)      16%
Profit before taxation                 10229      8565       19%
Profit after taxation                   6705      5201       29%
EPS (Rs)                                5.48      4.25         -
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Source: Company Accounts
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