A disappointing performance

By Naween A. Mangi
Jul 13 - 19, 1996

Lagging the traditional reporting season for domestic banks, Indus Bank finally announced their results for 1995 last week. In what has been a difficult year for most of the banking sector, with reduced profitability and slowing growth, Indus has also had problems. Although they posted some increase in deposits, profitability dropped and total assets also fell by some 15%.

The smallest of all domestic banks in terms of both deposit base, (see PAGE Annual Survey of Domestic Banks) and total advances, Indus was established in 1991, but has so far been unable to develop a strong name in the financial sector.


A look at their results for 1995 reveals that deposits have increased almost 29% over the last year from Rs 982 million to Rs 1.263 billion. The single largest component the deposit base is fixed deposits which make up 65% of the total and which posted an increase of just under 11% year-on-year. The largest increase came from savings deposits which rose 171%, while current and contingency accounts rose 60%.

As with other private banks, with the exception of those with particularly strong backing, Indus, too, would appear to be faced with the problem of credibility. In an environment of intense competition for deposits and the prime importance of the security of one's money in a developing country in politically uncertain times, attracting deposits requires a comprehensive and targeted strategy; most often the private banking sector relies on deposits from personal and business associates rather than walk-in customers, as we believe is the case with Indus. However, their more recent sales strategy which is the basic door-to-door sort, has been developed through their body of internees who are given specific monetary targets for raising deposits, presumably with adequate incentive.


The Indus daily product current account, which is aimed, in most part, at the corporate sector, offers an 11% annual yield, calculated on a daily product basis and paid twice a year on a minimum deposit of Rs 1 million.

As monthly income certificates become more and more common, Indus has also introduced a Mahana Munafa Scheme, aimed like most other similar schemes, at retired civil and army officers, as well as widows and housewives. Profit is paid monthly at the rate of 16% per annum on a minimum deposit of Rs 10000 for a minimum term of five years. Other private banks have also begun to develop monthly income schemes but with the two giants the National Bank of Pakistan and Habib Bank, offering similar schemes with active marketing, the stronghold will not be easy to break through.

Savings accounts with profit paid on a daily basis are also becoming popular with Faysal Bank's Rozana Munafa being the leading product. Indus Super Saver, offering a 14% yield requires a minimum deposit of Rs 200,000 with no withdrawal restrictions.

As far as foreign currency deposits are concerned, a savings account yields 6.125% (at current levels) on a deposit of $ 100. An overdraft facility of a maximum of 70% of the total deposit is also permitted at an interest charge of 16%.


The Bank's pre-tax profits took a battering as they tumbled 88% from Rs 49 million in 1994 to Rs 26 million in the current year. After-tax profit levels fell almost 35% from Rs 26 million to Rs 17 million in 1995.

On the income side, interest income fell more than 18% to Rs 136 million as total advances dropped sharply by more than 74% year-on-year from Rs 707 million to Rs 182 million. Non-interest income rose 141% with commission, exchange and brokerage contributing the largest share, but dropping 27% over the last year. The rise in non-interest income came mostly from a dramatic 1200% climb in income under the mysterious name of "other receipts"; there were no details in the notes to the accounts.

On the expenditure side, interest expenditure rose almost 32% with the rise in deposits and the introduction of higher-yielding accounts. Non-interest expenditure rose 19%, as the salary bill rose 7% and the chief executive took a 3.6% pay rise as well. Strangely enough, the largest increase in expenditure came from the 71% jump in "other expenditure." Once again, there were no details in the notes to the accounts.

Key ratios also dropped; after tax return on total assets fell from 1.1% in 1994 to 0.85% in the current year, and after tax profits as a proportion of deposits fell from 2.6% to 1.3%.

Most banks suffered a difficult year; growth in profitability was sluggish and interest spreads constricted. However, predictions for 1996, although not too optimistic were not exceptionally gloomy either. The case for Indus and other small private banks is different; credibility will not be easy to establish, and without either a strong name or a proven track record, the task of attracting deposits and building a firm base will not be an easy one.