Big banks: healthy, wealthy and wise

Thriving on growing investments in government securities, along with a pool of low-cost deposits and relatively high KIBOR levels; the five largest banks of the country registered hefty growth in profitability, during the first nine months of 2011 compared to the same period last year. Six-month KIBOR, the benchmark interest rate index, averaged 13.66 percent in 9MCY11, around 116 bps higher than the corresponding period of last year. The group comprises Habib Bank (HBL), National Bank of Pakistan (NBP), United Bank (UBL), Allied Bank (ABL) and Muslim Commercial Bank (MCB). Among these local giants UBL led the pack with an increase of 36 percent in net profit during the period under review against 9MCY10. At the other end of the spectrum, NBPs bottom line stayed flat. The improved revenue derived mainly from expansion in earning assets since the combined investment pool reached Rs.1,404 billion at the end of September 2011, marking a jump of 27 percent during the first nine months of the current year. At the same time, these banks continued to shy away from lending with their total advances portfolio falling by 2 percent to Rs.1,720 billion. However, NBP appears as an outlier in this regard as it increased its exposure to advances at the cost of its investments portfolio. Deposit expansion resulted in higher markup expenses as the combined deposit base jumped by 4 percent during the first nine months of CY11 to Rs.3,025 billion as of September 30, 2011. At this level, the top five banks collective deposit base accounted for around 56 percent of the industrys (all commercial banks) deposit base. MCB is leading the field with 12 percent expansion in deposits. While, NBP went against the tide, as its deposit base fell by 4 percent during the period under review. The groups average CASA eased down to 68.5 percent at the end of September 2011, from 69.4 percent at the end of December CY10. MCB is in good repair, since it enjoys the highest CASA ratio at 79 percent. These savvy bankers managed to keep their margins intact as the groups average gross spread ratio stayed unchanged at 55 percent in 9MCY11 over the corresponding period a year ago. The banks deserve a pat on the back for recording an impressive jump in investment banking revenues. On the other hand, inflationary pressures coupled with investment in technology up-gradation and expansion in infrastructure to lift non-markup expenses. The average income to expense ratio remained intact at 2.4 during 9MCY11, compared to the same period of last year. Surprisingly, in the face of stagnating advances the banks continued to face expansion in non-performing loans. Collective toxic loans reached Rs.271 billion at the end of September 2011, marking a jump of 20 percent during the first nine months of CY11. NBPs toxic loans went up by 36 percent. The other four banks witnessed growth in the vicinity of 8 to 12 percent during the period under consideration. As a result, NBPs infection ratio jumped to 20.4 percent at the end of the third quarter as opposed to 16 percent at the end of CY10. In terms of asset quality, ABL is going great guns enjoying the lowest infection ratio at 8.2 percent. The governments thirst for funds is not likely to be quenched any time soon. Hence, these banks will probably continue to capitalise on the risk-free investments window. The big five will continue to pile their eggs in the governments basket until the overall economic conditions improve, prompting exposure towards the private sector.

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Top five banks: combined profit and loss statement
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(Rsmn)                                9MCY11    9MCY10    chg
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Markup Earned                        279,000   241,640    15%
Markup Expensed                     (124,605) (107,638)   16%
Net Markup Income                    154,396   134,002    15%
Provisioning                         (24,117)  (23,214)    4%
Net Markup income after provisions   130,278   110,789    18%
Other income                          42,011    34,833    21%
Operating revenues                   196,407   168,835    16%
Other expenses                       (80,649)  (68,789)   17%
Profit before taxation                91,640    76,833    19%
Profit after taxation                 60,034    49,062    22%
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Source: Company Accounts
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