With a total asset base of around Rs 356 billion as on 31st December, 2011, Standard Chartered Bank (Pakistan) Limited (SCBPL) is the third largest mid-sized bank (by the asset size) after Bank Alfalah and Bank Al-Habib Limited, in Pakistan.
The bank's asset base has registered a CAGR of 7.67 percent during the past five years (CY06-11). SCBPL is one of the most profitable financial intermediaries in the country, providing a wide array of banking services, focusing on both retail and wholesale side. This is down to SCBPL's association with Standard Chartered PLC, which has a strong footing in developing countries and a healthy financial standing.
SCBPL runs 143 domestic branches and owns three subsidiaries: Standard Chartered Leasing Ltd, Standard Chartered Modaraba and Standard Chartered Services of Pakistan (Private) Ltd. In keeping with a growing demand for Shariah-based products, the bank has been increasing its footprint in the Islamic banking segment, with a network of 15 Islamic banking branches.
Mark-up revenues On the heels of its growing asset base and a higher KIBOR level, the bank's mark-up revenues registered 14 percent growth in CY11 compared to the previous year. The bank managed to increase its asset base by 11 percent during CY11 to Rs 356 billion as on 31st December, 2011, relative to the same period last year.
However, at the same time, the industry's asset base expanded by 15 percent. Following the footsteps of the industry, the bank's investment portfolio reached Rs 104 billion as on 31st December, 2011, glided 44 percent higher relative to the same period last year. The growth in appetite for investments lifted the bank's Investment to Deposit ratio (IDR) to 44 percent at the end of December, 2011, nearly 11 percentage points higher compared to the same period last year, and around seven percentage points lower compared to the industry's average IDR.
While SCBPL's advances fell by seven percent during the period under review to around Rs 130 billion at the end of December, 2011. Hence, the bank's Advance to deposit ratio (ADR) stood at 55 percent at the end of December, 2011, nearly two percentage points higher than the industry's average ADR. Loans and advances, to customers and financial institutions, accounted for 65 percent of the total mark-up revenues in CY11.
Mark-up expenses Aided by expansion in the deposit base, the bank's mark-up expenses registered growth. SCBPL's deposit base reached around Rs 236 billion at the end of December, 2011, marking a growth of sevenent relative to the same period last year.
The icing on the cake is that the SCBPL managed to tilt its portfolio towards low cost deposits -saving and current account, thereby, lifting its CASA ratio by around five percentage points to 83 percent - which is the highest level in the local banking industry- at the end of December 2011. The average CASA ratio for the group of 10 mid-sized banks stood at around 62 percent as on 31st December, 2011.
Net interest income Thriving on a pool of low cost deposit base, along with expansion in mark-up revenues, the bank's net interest income accrued a gain of around 19 percent in CY11. The gross spread ratio stood at 64 percent in CY11, nearly 2.4 percentage points higher than last year. Higher gross spread ratio indicates improvement in margins. The bank's gross spread ratio is the highest among the group of 10 mid-sized banks, with the group's average gross spared ratio at around 39 percent in CY11.
Non mark-up income and expenses Income from non-core banking activities stayed close to the last year's level. Hence, contribution of non mark-up income in the total operating income reduced to 23 percent in CY11, from 26 percent in the last year. The good part is that in the face of higher inflationary pressure, the bank managed to check growth in non mark-up expenses.
This is largely down to cost cutting measure adopted by the bank. This also resulted in closure of few branches, given that the bank's branch network fell to 143 branches at the end of CY11, from 162 branches at the end of CY10. Currently, banks are either reallocating or closing branches in areas where two or more branches are located in close vicinity to improve utilisation of existing infrastructure. Healthy margins, coupled with cost efficiency, repatriated the bank with higher operating income to expense ratio. The operating income to expense ratio improved to 1.93 in CY11, from 1.74 in CY10.
Non-performing loans The only discordant note was increase in non-performing loans- reached around Rs 25.6 billion at the end of CY11, registering a growth of 16 percent relative to the same period last year. This along with slight decrease in gross advances hauled up the SCBPL's infection ratio by three percentage points to 17 percent at the end of CY11. The banking industry's (all banks) NPLs grew by 11 percent during CY11 to Rs 607 billion at the end of CY11. However, higher provisioning expense lifted the bank's coverage ratio improved by one percentage points to 86 percent at the end of CY11.
Profitability The bank outdid large banks on profitability growth. On the back of improvement in core income, coupled with lower administrative expenses, the bank's bottom-line summed to Rs 5.4 billion in CY11, marking a growth of 51 percent compared to the previous year.
Outlook Pacra has maintained the long-term and short-term ratings of SCBPL at "AAA" and "A1+", respectively. This reflects SCBPL's association with a financially sound and reputed international bank - Standard Chartered Bank PLC. "The ratings are dependent on the management's ability to foster the bank's relative positioning in the sector with prudent control over the associated risks. Meanwhile, insulating the bank from any material deterioration in asset quality, in turn, impacting its performance would remain challenging," according to the rating agency.