National Bank of Pakistan (NBP) posted stellar 37 percent year-on-year profit growth in 1HCY20, despite the pandemic and the adversities it brought. The gross markup income stems from sizable growth in earning assets that averaged Rs2.4 trillion, higher by 26 percent from the same period last year and also better yields on the earning assets.
The asset mix continues to be tilted towards investments which averaged 51 percent higher year-on-year to over Rs1.4 trillion and contributed Rs92 billion to the markup income, up 92 percent year-on-year. The investment portfolio was reprofiled towards longer tenor instruments. NBP’s investment portfolio is diversified across risk-free government bonds and securities and high dividend yielding equities, with the interest rates shifting the investment portfolio from shorter term treasury bills to long-term PIBs. The yields on investments during 1HCY20 grew from 9 percent in 1HCY19 to 12.06 percent.
Net advances averaged 6.6 percent year-on-year to Rs911 billion and led to a 19 percent year-on-year increase in advances related mark-up income. Compared to December 2019, the advances ended at a slightly lower note, down by 4.8 percent. The bank puts the reduction down to overall slower demand and seasonal impact, which is expected to reverse in the quarters to come.
The asset quality did go down in line with the industry trend, leading to NPLs going north by Rs20 billion or 14 percent, although adequately provided for at 95 percent. Majority of the NPLs developed in the second quarter as the impact of lockdown started to show on businesses. The provision charges almost trebled year-on-year as a result, with the bulk of provisions charged against loans and advances.
NBP maintained 14 percent share in industry deposits, registering a 6.4 percent increase to Rs2.3 trillion over December 2019. The CASA ratio has also improved from 81.8 percent in December 2019 to 83.1 percent as of June 30, 2020. The non-funded income grew very marginally despite tough market conditions due to the pandemic. The fee and commission income went down understandably as business activities slowed down. Dividend and exchange income also remained subdued, but capital gains on equity and fixed income more than made up for the loss in other avenues.
The expenses were largely kept in check, improving the cost to income ratio to 44.2 percent, from 51.9 percent in the same period last year. The bank continues to grow and have most sounded indicators in the right place. With situation improving on the pandemic front and macroeconomic indicators looking up, NBP sits well for the quarters to come.
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