United Bank Limited (UBL) 1HCY09 Review

NPAT dwindled by 23%YoY
United Bank Limited (UBL) recently declared its financial result for 1HCY09. The 1HCY09 was quite disappointing in terms of profitability as the bank posted its NPAT of PKR 4.29 Billion compare to 5.59 Billion in 1HCY08 which translated a decline of 23%YoY and 32%QoQ; the profit before tax was PKR 6.77 Billion in result of 24%YoY decline; the EPS of the bank also shrunk by 23%YoY to PKR 3.85. UBL did not declare any interim payout for 1HCY09
However, the increase in KIBOR rates and 13% average increase in advances brought the increase in interest income of the bank by 20%YoY to PKR 15.83 Billion compare to PKR 13.22 Billion during the same period last year. The Operating revenue also increased by 17%YoY to PKR 22.61 Billion compare to PKR 19.25 Billion during the same period last.
In spite of the high inflationary pressures (average 1HCY09 CPI at 17.6%), the bank made just 11%YoY increase in its Administrative expenses compare to the same period last year.
Higher NPL significantly impacted the results
Although the Net interest income before provisions grew by 20%YoY but on the other hand the non-performing loans (NPL) made a drastic increase of 153%YoY to PKR 6.42 Billion compare to PKR 2.54 Billion during the same period last year. The advance to deposit ratio (ADR) was 72% during the period.
Net interest income after provisions decreased by 12%YoY compare to the same period last year at PKR 9.41 Billion. Provisions are up by PKR 2.5 Billion to PKR 6.4 Billion this year mainly due to elevated corporate and on-going consumer portfolio provisions. The provisioning charge also includes PKR 484 Million charged on account of impairment loss taken on the equities portfolio.
The Net interest margins (NIMs) remained strong at 6.3% owing to higher interest rates and attractive returns on the investment portfolio. However, NIMs on a year on year basis were impacted by an increase in the cost of deposits as a result of SBP regulation of 5% minimum rate of return on saving deposits which came into effect in June 2008.
Flimsy Macro-economic indicators for whole SectorThe upshots of the global financial crisis remained annoying for Pakistan’s economy which resulted in 2% GDP growth during FY09. The political instability and increased militancy in the northern areas of the country also took its toll on the economy both in terms of direct costs of the fight against extremism as well as affecting investment inflows and investor confidence in the country.
However, the IMF program played an important role to bring some strength in key economic indicators. Foreign exchange reserves which dropped to even lower than USD 7 Billion in November 2008 had now increased to USD 11.4 Billion in June 2009. Current account deficit also lowered by 23% this year at USD 8.5 Billion along with decrease in trade deficit to USD 14 Billion against USD 16.8 Billion compare to last year. Remittances again showed up trend by 21% to USD 6.4 Billion this year which also helped to stabilize the external account.
The chief challenges, however, which should have to be resolved in order to restore the economy growth and investors’ confidence in the Pakistan remain the acute energy crisis and the increased threat of militancy and extremism. Given the government’s current focus on these issues, I stay watchfully hopeful that the economic indicators will continue to improve this year for the overall banking sector.
Looking Ahead
UBL being the most attractive stock within the private commercial banks showed a slightly better incremental stock performance during the subjected period. The stock price of the bank mounted by 13% in CY09 to date compared to 31% rise in the benchmark index on KSE. However, the inclusion of a further 1% decline in the discount rate to 12% in recent monetary policy gave an obvious hope of betterment in near future and I am anticipating that its stock price will reach to PKR 65/share in FY09. I maintain the ‘buy’ stance for the bank.