NATIONAL BANK OF PAKISTAN LIMITED-(NBP)
MULAZIM ALI KHOKHAR,
Feb 25 - Mar 02, 2008
National bank of Pakistan (NBP), rated as AAA for medium term and A1+ for short term by JIC-VIS, is the largest bank in Pakistan with 1,200+ branches nationwide. Her principal activities are to provide commercial banking and related services in Pakistan and overseas (with 18 overseas branches including export processing zone branch) and handle treasury transactions for the Government of Pakistan as agent to the State Bank of Pakistan.
She also provides services as trustee to National Investment Trust including safe custody of securities on behalf of NIT. Four overseas regions created by the Group were Europe and USA, Middle East Africa and South Asia, Central Asian Republics and Far East.
The company is worth Rs.668bn, with equity of Rs.65bn comprising of Rs.8bn share capital. The company's market capitalization stands at about 215bn, while she possesses 815mn outstanding shares (with only 35% free floating shares).
OPERATIONAL AND FINANCIAL PERFORMANCE
The competitive edge, due to largest network of branches, has helped her to increase its loan book by more than 25% compounded annually. Net earnings have also improved by 79% over the last three years.
Her Earnings per share have gone up by 5.3% to Rs.18.09 compared with Rs.17.18 corresponding period last year. Earnings before tax have perked up to Rs.22180mn (up by 10%), while Revenues Net stood at Rs.32.78bn (up by 11.14%) as compared to same period last year. Company has achieved a growth rate of 10%, while her PAT has grown at a 5 year CAGR of 49% while PBT at 34.2%. [See Table # 1]
Her Returns on Equity have grown at an average 21% YoY, whilst the Returns on assets have growth at an average 2.4% YoY and at 5 year CAGR of 25.16%. Owning to favorable earnings she has been able to pay decent dividends mostly recently as Rs.4 per share and has manifested a dividend yield of more than 2%.
The bank has maintained a risk averse advance to deposit ratio (ATD ratio) when compared to the industry. Currently industry average ATD ratio stands at 70% while her ATD ration stands below 62% (and was even below 60% in earlier years). This is because she is not giving out many lending policies except for a few which she offers to the Government employees like Housing Finance (Saiban Home Package), President's Rozgar Scheme and small scale retail loans and some Agri loans.
This marks another fact too, that is; due to the late entry in consumer financing with only a few products for government employees, and due to bank's obsolete infrastructure, the bank has remained less efficient to participate in profitable and high yielding consumer segment.
Her provision for the non-performing loans stands at Rs.640mn while it was Rs.1226mn for the same last year, marking a decrease of 47% in the said provision. While on the other hand her bad debts written off have increase five folds mounting to Rs.26mn as compared to same period last year figures of Rs.5mn
Her employee performance has been growing at an average rate of 10% for the three quarters ending September FY07, while she marked per employee revenue rate of Rs.2.98mn compared to same period last year of Rs.2.7mn/employee. For the last three years she has continued to earn more than Rs.3mn per employee
Her operational cash inflows have grown tremendously at 400% while escalating at a level of Rs.21.5bn as compared to Rs.4.8bn last year. While her investment cash out flow due to investing in securities has grown six folds marking total investment of Rs.38.7bn compared to Rs.6.3bn for the same period last year.
BANKING SECTOR AND FUTURE OUTLOOK
For the last few years the sector performance has been out standing. This has been possible due amicable Government policies to boost the sector with healthy competition, lower taxation and reduction in non-performing loans brought about a lowering of average interest rate. Banks and financial institutions are free to set their own lending and deposit rates. As a result of successful reforms in the financial sector the M2/GDP ratio, which is an indicator of financial deepening and development has been showing rising trend since FY90-FY91. M2/GDP ratio has increased from 39.3% in FY90-FY91 to 45% in FY05-FY06.Credit to private sector/GDP ratio is also rising from 21.7% in FY90-FY91 to 27.4 percent in FY05-FY06.
The banking average profits (spread) have been 7.1% for the last 3 to 4 years. With this a high demand for consumer and industrial loan demands have also played vital role in encouraging the sector.
These facts plus the economic reforms are indicating the strong health of banking sector but the growth might be hit adversely in the short term due to global and domestic uncertainties. Banks have started showing mounting bed debts and hiking provisions which are likely to affect their current financial year performance. This may distress NBP's financial performance but we expect the bank to sustain the performance for the financial year, as she has provided comparatively low provisions and lower advance to deposit ratios. Keeping up the same growth pace will be a bit difficult for her but will manage to earn decent profits.
RS IN MILLIONS