Banks are supposed to lend and Summit Bank (KSE: SMBL) does that. Lending is also supposed to be risky at times, and Summit is facing just that. Being small in size does not help, but the yesteryears problems seem to have made a comeback at Summit. The asset and deposit bases are almost flat - gross spreads have improved, cost of deposit is down but provisioning is back to haunt.
Summit is one of the few banks having an uncharacteristically high ADR of 58 percent. Investments have actually gone down both in absolute and percentage-of-deposit terms, which is odd given the PIB feast on offer. The topline has remained flattish as earning assets failed to register growth. Spreads are on a multiyear low, which does not help much either.
The silver lining is the much improved deposit-mix. Summit does not seem to be in a hurry to build the deposit-base, it seems more interested rationalising. The CASA ratio has improved dramatically of late, and cost of deposits, as a result, is considerably down - well below 6 percent. The gross spread ratio, resultantly, reads a much better picture.
The loan portfolio seems to have its problems with NPLs back in the foray. Sizeable provisioning expense was also recorded on investments. The post-provision income was still healthier on a year-on-year basis, thanks to the dramatic improvement in cost of deposit.
Summits strategy of cross-selling seems to be yielding the desired results, with non-markup income lending an able hand to the profits.
Lot will depend on Summits ability to clean its books and continue to rationalise deposits. There is much more room towards improving NPLs and the coverage of toxic loans.

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Summit Bank Limited (Unconsolidated P&L)
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Rs (mn)                               9MCY14    9MCY13      chg
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Markup Earned                          7,103     7,141      -1%
Markup Expensed                        5,392     6,626     -19%
Net Markup Income                      1,712       516     232%
Provisioning/(Reversal)                  486     (189)
Net Markup Income after provisions     1,226       705      74%
Non Mark-up/Interest Income            1,392     1,183      18%
Operating Revenues                     2,617     1,888      39%
Non Mark-up/Interest Expenses          3,651     3,297      11%
Profit (Loss) Before Taxation        (1,033)   (1,409)     -27%
Taxation                                  98       391     -75%
Profit (Loss) After Taxation         (1,132)   (1,800)     -37%
EPS (Rs)                              (0.77)    (1.63)
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