United Bank Limited (UBL) announced its CY12 annual financial results yesterday, registering an impressive 2.9 percent year-on-year growth in after-tax profits. Despite a modest growth in the top line, a strong bottom line is reflective of banks smart non-core functions and the overall scenario of declining provisioning charges in the industry.
UBL managed to increase its asset base by a considerable 17 percent over December 2011. In line with the industry trend, investment in government securities occupied the major chunk of the asset increase, with a 26 percent increase over December 2011. But quite unlike the industry trend, growth in advances was handsome as well at 13 percent over December 2011, indicating UBL is still somewhat engaged in the core business of lending.
As a result, the Banks ADR remained over 50 percent, although just - way over the industry average where bigger banks ADR is hovering in the mid 40s. The mark-up income increased only slightly despite a sizeable asset growth, as the low interest rate scenario during the period, limited the returns.
The liability side has not been that big an issue, as obvious by a strong 29 percent growth in deposits over December 2011. Higher deposits and increased rates on deposits, coupled with low returns on advances, resulted in a subdued gross spread ratio, which squeezed to 52.6 percent for the period, down from over 56 percent in 2011.
Aggressive provision in the yesteryear, led to a considerable decline in provision charges for 2013, resulting in a healthy post provision mark-up income. The NPLs of late have been on an increase, going up by 14 percent over December 2011, leading to a slightly higher infection ratio of 15 percent.
Another impetus to the bottom line was provided by strong other income contribution. A 31 percent year-on-year increase in other income reflects well on banks strategy in such times of distress, as the reliance on investing in securities, and dividend income increases. Whats undesirable in an otherwise healthy P&L statement is a massive increase in administrative expenses, which increased by a whopping 20 percent, limiting the bottom line growth any further.
Going forward, UBL will have a close eye on the interest rates, as it would be a major determinant towards any shift in the current strategy of banks. From what it seems, investing in government papers and the stock funds is doing the trick without taking huge market risks of lending to the private sector.
PRE>
================================================================
UNITED BANK LIMITED
================================================================
(Rs mn) CY12 CY11 chg
================================================================
Mark-up Earned 75,380 71,377 6%
Mark-up Expensed (35,737) (31,305) 14%
Net Markup Income 39,643 40,072 -1%
Provisioning (4,247) (7,275) -42%
Net Mark-up income after provisions 35,396 32,797 8%
Other income 17,195 13,130 31%
Operating revenues 56,838 53,202 7%
Other expenses (26,578) (22,068) 20%
Profit before taxation 28,410 23,634 20%
Profit after taxation 19,280 14,887 30%
EPS (Rs) 15.71 12.13
================================================================
Source: Company Accounts