Samba Bank had a comfortable quarter ending March 2015 with investments in PIBs serving as the guardian angel for the bank’s profitability. And it’s not just Samba, the same has been the tale of every other Pakistani bank of late; to park in high yielding sovereign securities that carry virtually no risk.
Top line growth of 44 percent during the quarter is the fair outcome of the banks’ strategy to build up its portfolio of investments. It’s the lust for long-term bonds that PIBs now frame a hefty 92 percent of Samba’s aggregate investment as opposed to 76 percent as of December 2014. Hence, the bank now boasts an unusually high investment-to-deposit ratio (IDR) of 98 percent, reflecting a sharp growth from 63 percent as of December 2014.
Deposit growth stayed subdued, rising by only one percent during the quarter. Here, a rapid increase in repurchase agreement borrowings to the tune of Rs10 billion helped the bank to make fresh investments in government securities.
In terms of lending, the bank seems to have adopted a cautious lending approach whereby its advances grew by a skimpy four percent over December 2014 levels. Resultantly, its advances-to-deposits (ADR) ratio improved slightly to 71 percent (CY14: 69 percent).
With the CASA standing at 57 percent as of March 2015, its high cost of deposits is a worrying factor. As a consequence, the quarter saw its Net Interest Margin (NIMs) shrinking by 600bps to 37 percent.
Yet, the bank’s relatively cleaner loan books are to be cherished. Its impressive infection and coverage ratios of 9 percent and 98 percent respectively wouldn’t go amiss. Non-performing loans (NPLs) are continuously on the mend and the bank booked a reversal in provisioning against NPLs to the tune of Rs49 million during the quarter, depicting an increase of 75 percent over March 2014 levels.
Besides, the bank’s non-mark-up income also lent a good hand in boosting the bottom line growth as it ballooned by nearly 142 percent during the quarter. Here, a bulky gain on sale of securities served as the primary rescuer especially at the time when its fee, commission and brokerage income followed a downward spiral.
In a declining interest rate scenario where yields on investments are falling, the current asset composition might not turn out well for the bank. With cleaner books and controlled NPLs, moving towards higher yielding advances can heal the bank’s NIMs in coming times. Further, deposit mobilization and deposit rationalization seem crucial. In this regard, fostering the current account deposits to further enrich its CASA can help to ease its cost of deposits thereby uplifting the bank’s profitability.
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Samba Bank Limited (Profit & Loss Account)
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Rs (mn) 1QCY15 1QCY14 chg
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Markup Earned 1,345 934 44%
Markup Expenses (849) (537) 58%
Net Markup Income 496 397 25%
Reversal against advances 49 28 75%
Net Markup Income after province 545 428 27%
Non Mark-up/Interest Income 126 52 142%
Total income 671 480 40%
Non Mark-up/Interest Expenses (492) (397) 24%
Profit Before Taxation 179 83 115%
Taxation (84) (29) 190%
Profit After Taxation 95 54 75%
EPS (Rs) 0.10 0.07
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Source: KSE announcement
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