National Bank of Pakistan finally announced much awaited results for the year ending December 31, 2001. The Board of Directors also announced 12.5% dividend subject to the approval from State Bank of Pakistan. The bank has posted over Rs 3 billion profit before tax for the year 2001 as compared to a profit of one billion rupee for the previous year. However, analysts refrained to give comments due to non-availability of full details and the merger of National Development Finance Corporation (NDFC) with the bank.

According to the details given in the announcement, net mark-up/interest income went up from Rs 8.821 billion to Rs 12.413 billion and non mark-up/ interest income from Rs 4.030 billion to Rs 4.502 billion. Administrative expenses went up from Rs 8 billion to Rs 8.7 billion. Profit before provision, amortization and taxation increased from Rs 4.820 billion to Rs 8.190 billion. However, provision against advances, investment and other assets hiked from Rs 1.157 billion to Rs 2.473 billion. In the absence of details it is almost impossible to quantify income and/or provision of the bank because the accounts give the figures of the merged entity.

Looking at the un-ceremonial closure of NDFC and its merger with the bank, one point is clear that the profitability of the bank must have been affected. The NDFC had a substantial quantum of non-performing loan and it also suffered from poor recovery. Believing this, analysts say, "In the absence of details two future scenario may emerge: 1) earnings of the bank for the year 2002 may go down due to further provisioning or 2) earning may increase substantially, by over Rs 2.5 billion, because the bank has fully amortized its cost.

National Bank, by classification, is a commercial bank. However, its nature of deposits, advances and activities are quite different from a traditional commercial bank. It has always enjoyed huge deposits and very low cost of funds. It also earns substantial fee-based income. Therefore, the declining trend in average lending and borrowing rates may not affect its spread significantly in the near future. However, the real point of concern is the merger of NDFC with the bank. Though, a large number of employees of NDFC have been retained by the bank, disbursement of medium and long term credit may not be there for some time as the bank may continue to disburse the already approved loans of NDFC, at the best.

NDFC had the largest exposure in textile and sugar industry. A large part of this was infected which led to the closure of the best performing public sector DFI of the past. Analysts express their concern and say, "Probability of better recovery or reduction in NPLs seems low. Since September 11, 2001 profitability of textile mills has remained under pressure due to synchronized global recession. Despite producing nearly 3.3 million tonnes sugar during the recently concluded crushing season, mills are not able to discharge their liabilities due to very high inventory." Therefore, the bank may witness substantial increase in provisioning against NDFC-related advances.

OUTLOOK

The GoP was able to sell 10 per cent shares of the bank through stock exchanges. Will the announcement of 12.5 per cent dividend help in sale of another 10 per cent shares of the bank? Analysts say, "The scrip has been quoted much above the par value since its listing. Therefore, the GoP may succeed in selling another 10 per cent shares. However, the probability of selling around Rs 20 per share is low. A point which may prompt the GoP to sell more shares of the bank is the increase in the bid by Muslim Commercial Bank (MCB) for acquiring 51 per cent shares alongwith management control of United Bank Limited (UBL).

NATIONAL BANK OF PAKISTAN PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 2001
	2001	2000
	Rupees in '000
Net Mark-up/ Interest income	12,413,337		8,821,045
Non Mark-up/ Interest income	4,501,568		4,030,248
Total Revenue	16,914,905		12,851,293
Administrative expenses	8,709,895		8,008,620
Other non interest charges	15,396		23,172
	8,725,291		8,031,792
Profit before provision, amortization and taxation	8,189,614		4,819,501
Provision against advances, investments and other assets	2,473,389		1,157,239
	5,716,225		3,662,262
Amortization of deferred cost	(2,700,596)		(2,629,862)
Profit before taxation	3,015,629		1,032,400
Charge for taxation	(1,867,100)		(571,173)
Profit after taxation	1,148,529		461,227
Un appropriated profit / (loss) brought forward	184,848		(230,256)
Profit available for appropriation	1,333,377		230,971