NBP endures a tough time
Hands down, NBP is the only bank in the top-tier which has been sincerely focusing on its core duty of lending to the private sector off late. This lender’s Advances-to-Deposit Ratio (ADR) stands at 57 percent-–the highest among the top five banks.
However, something unusual might have happened in the 2Q CY13 which made NBP to adopt a belt and braces strategy. During 2Q CY13, NBP held down private sector lending and parked its funds in investments.
A massive jump of over 400 percent in provisioning expense during the similar period shows that NBP has had a tough time lending to private sector and hence it held its horses. During 2Q CY13, NBP’s ADR dropped from 70 percent in 1Q CY13 to 57 percent in 2Q CY13.
Perhaps the bank might have continued the restrictive lending stance in 3Q CY13 too, which coupled with a rate-cut of 50 basis points in late 2Q CY13, wrecked havoc on NBP’s top line which slid by 10 percent quarter on quarter in 3Q CY13.
More drastic than the top line plunge was the fact NBP couldn’t propel its low-cost deposits, which exposed the bottom line to its weak top line.
While the 3Q CY13 balance sheet is not available to determine the recent break-up of deposits, the 2Q CY13 accounts show that while current deposits boasted a growth of 21 percent quarter on quarter in 2Q CY13, saving deposits plunged by 8 percent quarter on quarter. The focus on current deposits is a positive sign; however, the drop in saving deposits took NBP’s CASA to 58 percent in 2Q CY13 from 68 percent in 1Q CY13.
The spillover effect is felt in the mark-up expense in 3Q CY13 which drove up by 4 percent quarter on quarter, plopping down the spread ratio to 36 percent in 3Q CY13 from 44 percent in the previous quarter.
A little respite was provided by provisioning expense which dropped by 27 percent quarter on quarter. However, this can be attributed to higher base-effect as provisioning expense had surged radically in the 2Q CY13.
A drop in non-mark-up income mainly owing to inadequate gains on the sale of securities further pushed the bottom line in the pickle, which ended up eroding by 89 percent quarter on quarter.
While quarter-on-quarter analysis might have some seasonal caveats, year-on-year comparisons depict a much clearer picture of the bank’s performance. Year-on-year tally shows that NBP’s spread ratio has improved from 39 percent in 9M CY12 to 41 percent in 9M CY13. Perhaps, low interest rate this year compared to last year and the bank’s enhanced focus on current accounts this year versus last year backed this improvement. Besides, tall provisioning expense during 9M CY13 compared to 9M CY12 might have improved bank’s coverage ratio, but dented its bottom line.
Going forward, NBP’s focus on current deposits will bear fruit as SBP has recently linked minimum deposit rate (MDR) on saving deposits to discount rate. Owing to inflation expectations of 11-12 percent by the end of current fiscal year, discount rate is expected to see a hike in the upcoming monetary policy which will be followed by a hike in MDR, rendering saving deposits costly. The top line is also expected to perk up owing to rate hikes; however, only if NBP reverts to its earlier advances-led asset mix instead of jumping on the bandwagon of investing in government securities.
NATIONAL BANK OF PAKISTAN (CONSOLIDATED P&L)
Rs (mn) 3QCY13 2QCY13 Chg
Markup Earned 23,342 25,901 -10%
Markup Expenses 14,982 14,467 4%
Net Markup Income 8,361 11,434 -27%
Provisioning/(Reversal) 4,539 6,228 -27%
Net Markup Income after provisions 3,821 5,206 -27%
Non Mark-up/Interest Income 5,466 7,634 -28%
Operating Revenues 9,287 12,840 -28%
Non Mark-up/Interest Expenses 9,105 9,036 1%
Profit Before Taxation 182 3,804 -95%
Taxation 157 729 -79%
Profit After Taxation 339 3,075 -89%
EPS (Rs.) 0.16 1.45 -89%
Source: KSE Notice