The countrys top five banks - NBP, HBL, UBL, MCB and ABL - delighted investors by announcing cumulative profit of Rs 19.7 billion in the first quarter as against Rs 16.5 billion in the same period a year earlier. Barring NBP, the largest commercial bank in Pakistan, the other four banks were successful in posting double-digit bottomline growth.
The banks profitability thrived upon hefty returns on investments. Aggregate mark-up return amounted to around Rs90 billion in the first quarter, a year-on-year growth of 15 percent. MCBs top-line improved with the biggest jump of around 22 percent, while NBPs 10 percent growth, brought up the rear among the big five in this category.
Induced by higher return on treasury securities, commercial banks massively stretched their investment portfolio during the past few quarters, lifting total investment portfolio of the five giant banks to around Rs1,144 billion at the end of 1QCY11 as against Rs825 billion at the end of 2009. At the same time, advances portfolio remained unchanged at around Rs 1,755 billion.
Non mark-up income totalled Rs13 billion in 1QCY11, a year-on-year jump of 10 percent, with growth led by MCB, followed by UBL and HBL while both NBP and ABL experienced a drop in non mark-up revenues.
In keeping with growth in deposit base, the top five banks remunerated Rs40 billion in the form of returns to depositors in the first quarter of 1CY11, a year on year growth of 13 percent.
UBL saw the biggest year-on-year jump of 27 percent in its mark-up expenses, while both HBL and ABL successfully capped growth at a single-digit level. A huge growth in UBL expenses is driven by the low-base effect as the banks interest expenses dropped by 10 percent in 2010.
Although the deposit base of the top five banks dropped by 2 percent in the first three months of CY11 to Rs2,836 billion, this level is still 10 percent higher compared to the deposit base maintained at the end of 2009.
With banks aggressively hunting for low cost deposits, the CASA ratio of HBL and MCB ameliorated by 3 and 2 percentage points, respectively, in the first three month of the current year, while the other three banks witnessed a slight drop.
The management of UBL, HBL and NBP were able to maintain the growth of administrative expenses in line with the inflation rate, close to 14 percent year-on-year. However, MCBs administrative expenses grew by a whopping 38 percent, mainly due to growth in banks infrastructure during the last year.
As the cumulative non-performing loans of the five largest banks mounted to Rs243 billion at the end of 1QCY11 as against Rs 225 billion at the end of 2010, amid stagnant advances growth, the collective infection ratio of the five largest banks surged to 12.6 percent at the end of 1QCY11 from around 11.6 percent at the end of 2010. NBP faces the highest infection ratio of around 17.2 percent.
On the operation front, MCB remained the most efficient as its ratio of operating revenue to administrative expenses - a key measure of a banks efficiency - hovered around 4.9 times against an average of 4.2 times for the five giant banks.
As investments are centre stage of banks revenue strategy, the group of five giant banks would see further slowdown in NPLs growth down the road. However, with the groups average CASA ratio standing at around 70 percent, insatiable demand for low cost deposits might increase risk of an asset-liability mismatch for financial intermediaries.
Top 5 banks performance (1QCY11 vs 1QCY10)
PAT Net mark-up income
Allied Bank 41% 16%
Habib Bank 30% 23%
MCB Bank 21% 25%
United Bank 18% 11%
National Bank 0.1% 9%
Total 19% 17%
Source: Company accounts