In the season of middling banking profits, National Bank of Pakistan (NBP) once again stood out, with a healthy 18 percent year-on-year increase in after-tax profits. The state-owned bank continued its impressive performance in CY16, despite all time low spreads, mainly on the back of a massive reversal in provisioning charges.
The most significant impact was made by reversals booked in lieu of provisioning for NPLs. Recall that, provisioning expenses had long been a drag on NBPs profits, but greater focus on recoveries and better prudence is finally yielding the results. The coverage ratio has improved to over 90 percent even higher than some of the more-fancied big banks.
The NPLs too, are on the mend, and the infection ratio has decreased from 22 percent to 18 percent. Although, the infection ratio still remains on the higher side, but when seen in context of NBPs legacy and the ills of being a government owned bank it is a commendable feat.
The topline understandably remained flattish, despite decent growth in the balance sheet size. NBP, more by design than by choice, has not historically shied away from lending, unlike its peers. Advances continued to increase at a healthier pace of 15 percent over December 2015, than investment in government securities.
Investments on the other hand, still constitute the bulk of earning assets. But the growth in investments has been steadier, rather than stellar, of late. It makes more sense for the likes of NBP to have this delicate balance in the asset mix, especially considering the quality of the loan book, which has only just started to improve.
On the liability front, deposits kept coming at good pace having increase 16 percent over December 2015. NBPs CASA has remained on the lower side, when compared to similar sized peers, but it is not exactly an apple to apple comparison. That said, NBP would do well to also attract more growth in current accounts, and little in fixed deposits. The cost of deposits is understandably higher, when compared to other big banks.
It is easy to forget that NBP carries all the ills of being state-owned, yet maintains much discipline to churn out decent profits. Much of it is down to effective cost control of late, and more prudent lending. Should the opportunity arise to lend to the private sector, NBP would not be too far behind, given that it has not shied away lending much riskier borrowers.
With such stellar growth in profits, it is difficult to comprehend as to why did the need arrive to chop and change the management at NBP. As it happens in most cases, the answer to it may never be known. All said, things look well under control at NBP, and any uptick in economic activities, would boast well for the state owned bank.
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