National Bank of Pakistan (NBP) has continued its strong performance, as reflected by strong profit numbers for 9MCY19. The leading public sector bank racked up revenues at a growth of 20 percent year-on-year, which laid solid foundation for sizeable growth in pre-tax profits. Save for higher effective exchange rate due to imposition of super tax, everything about the profit and loss statement, tells NBP is in a very good shape.

The balance sheet expanded at good pace, with assets growing 8 percent over December 2018, constituting nearly 14 percent of the total industry. Gross advances were marginally higher than December 2018 level, at approximately Rs1.1 trillion. When compared with the same period last year, the advances have increased at a brisk rate of 14.7 percent. The loan to asset contribution was still lower at 31.5 percent.

National Bank of Pakistan
Rs (mn)9MCY199MCY18chg
Markup Earned167,388105,21759%
Markup Expensed113,52561,66684%
Net Markup Income53,86343,55124%
Non Mark-up / Interest Income25,57322,49214%
Total income79,43666,04320%
Non Mark-up / Interest Expenses41,36237,9439%
Provisioning/(Reversal)8,8924,98378%
Profit Before Taxation29,18223,11726%
Taxation12,8526,93985%
Profit After Taxation16,33116,1771%
EPS (Rs)7.687.60
Source: Company accounts

The NPLs have increased by Rs19 billion or 14 percent over December 2018. The infection ratio, has expectedly soared, as the interest rates went up during the period. NBP's infection ratio stood at 13.9 percent, higher than 12.6 percent as at December 2018. That said, the NPLs are adequately provided for with a coverage ratio nearing 88 percent.

Nearly all the meaningful asset expansion came from the investments portfolio, which crossed Rs1.5 trillion, having increased by 22 percent over December 2018. The bank's IDR stood in excess of 51 percent, as NBP's share in industry's total investments soared to 15 percent. Given the interest rate scenario, the bank rightly focused on building a portfolio around short-term investments, keeping in mind the risk and capital management strategy. The yield on investments during 9MCY19 improved from 6.97 percent in the same period last year, to 10.52 percent in 9MCY19.

The deposit growth was in check as a 3.6 percent dip was witnessed over December 2018 levels to under Rs2 trillion. The deposit composition was healthy, and the CASA ratio further improved to 83.7 percent, proving vital in an increasing interest rate environment, in lowering markup expenses. The average deposits during the period were higher by 9 percent, and the cost of deposits shot up to 6 percent as compared to 3.5 percent in the same period last year. On the other hand, the yield on advances grew from 8.1 percent in 9McY18 to 11.25 percent in 9MCY19.

Non-funded income constituted one-third of NBP's total income, having increased by 13.7 percent year-on-year. The growth mainly stemmed from fee, commission, dividend income, and remittance channels – all of which posted growth during the period. The dip came from the gain on sale of securities, which was reflective of the under par performance of the stock market.

Going forward, NBP would be looking to further consolidate its position in the industry, with careful and prudent lending, with an eye or two, on the rising NPLs. The deposit base seems to be growing in the right direction, which should bode well for the NBP to curtail markup expenses. The interest rate cycle may start reversing soon, and with it, a reversal in asset allocation strategy may also be visible. Either way, NBP seems in pretty good shape.