UNITED BANK LIMITED (UBL)

MULAZIM ALI KHOKHAR
Research Analyst

Jan 28 - Feb 03, 2008

United Bank (rated short term A1+ and long term AA+ by JCR-VIS) works to provide commercial banking and other financial services like personal banking, cash management, retail loans and deposits, savings/current bank account, vehicle loans, personal loans, retail trade finance, global banking, lending to priority sector and small scale sector, foreign exchange and export finance, corporate loans and equipment loans.

The Bank operates through 1044 branches within Pakistan and 15 branches outside Pakistan which include; Bahrain, Qatar, Yemen, UAE, USA, Off-Shore Banking Units, and some subsidiaries in Zurich and UK.

The Bank has assets worth Rs. 483 bn, paid up share capital Rs. 8.1 bn and Rs. 9.7 bn. Company's recent market capitalization stands at 141 bn while her total outstanding shares are 809 mn of which about 372 mn are closely held shares. Total assets grew by Rs. 60 billion in the last nine months to Rs. 483 billion, with gross advances increasing by 13% to Rs. 296 billion and deposits by 14% to Rs. 381 billion.

FINANCIAL PERFORMANCE

The Bank has been performing well in the current Regime but the US sub-prime mortgage losses have created a wave of uncertainty for the developing nations. This coupled with domestic financial and political qualms have started showing the negative results in Pakistan's financial market. The banks and other financial institutions are increasing their provision for bed debts.

FINANCIAL PERFORMANCE

JULY SEP 2007

JULY SEP 2006

GROWTH %

JAN SEP 2007

JAN SEP 2006

GROWTH %

 

--------------------------- (Rupees in '000) ---------------------------

Net mark-up

6191224

5580237

10.95%

18092151

15238135

18.73%

Provision for NPL & A-net

(2614946)

(859174)

204.36%

(3024186)

(1601037)

88.89%

Provision for diminution in Inv.

(2250)

-

2250.00%

(15750)

(96968)

-83.76%

Bad debts written off

(241608)

(33290)

625.77%

(560653)

(107599)

421.06%

Net mark-up after provisions

3332420

4687773

-28.91%

14491562

13432531

7.88%

Total non mark-up Income

2164783

1402182

54.39%

6379045

4649744

37.19%

Total non mark-up expenses

(3413281)

(2672391)

27.72%

(9813911)

(7595173)

29.21%

Profit before taxation

2083922

3417564

-39.02%

11056696

10487102

5.43%

Profit after taxation

1452067

2212026

-34.36%

7083034

6906629

2.55%

Same is the impact on UBL as it has recognized heavy bed debts with increasing provision for the non performing loans. Her bed debts have increased 421% to Rs. 561 mn for the three quarters ended September FY07 of which Rs. 242 mn was recognized in the 3rd Q FY07. The provision for non-performing loans has gone up by 89% to Rs.3 bn in 3QFY07 as compared to Rs.1.6 bn for the same period last year.

Even in the worse situation the Bank has shown 5% increase in PBT for the three quarters FY07 with Rs. 11.1 bn while the single 3rd quarter FY07 marked Rs. 2.1 bn a decline of 39% in PBT as compared to Rs. 3.4 bn in 3Q last year.

Net markup/ interest income before provisions came in at Rs 18.1 bn up by 18.7% compared to Rs. 15.2 bn for the same period last year owing to an increase in average performing advances up by13.4% and higher yields on the portfolio. Non-funded income increased solidly by 37% to Rs. 6.4 bn as against Rs.4.6 bn same period last year.

Administration expenses showed a 28% increase over the same period last year. This was due to further investment in human resources and higher variable costs including advertising, commissions and loyalty programs. However, administration expenses have remained flat compared to the previous quarter.

UNITED BANK LIMITED (UBL)

FY05

FY06

3Q FY07

EPS (diluted) (Rs)

9.2

17

8.75

DPS (Rs)

2

6.01

9

PE

16.5

8.9

6.9*

PBV

4.5

3.1

2.2*

ROE

28%

34%

27.2%*

* These are only provisional figures till 3QFY07

EPS AND DPS ANALYSIS

Company's EPS stands at Rs.8.75 per share showing increase of only 3% from Rs.8.53 per share for the same period last year. She may not be able to keep up the pace and the analysts expectations of EPS of above Rs.20 per shares may not be achieved due hiking bed debts and their provisions in the last quarters of FY07. The company paid higher dividends of Rs. 3.88 for 1st Q FY07, Rs.3.16 2nd Q FY07 and Rs.1.96 3rd Q FY07, i.e. cumulative of Rs.9 per share have been awarded as dividend so far. While last year the company paid Rs.6.01 per share for the FY06.

EMPLOYEE PERFORMANCE

UBL's employee performance has been outstanding with over Rs 4 mn per employee earnings. The performance has jumped higher from 2005 and in the present regime. The regime wanted the consumption oriented economy and the banks have played a vital role in this regards. The performance might decline a bit this year due to increasing non-performing loans.

The high Employee performance is a consequence of continuous worked hard on employee training and process re-engineering ensuing efficiencies, decreased redundancies and increased per employee turnover.

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 1990-91.M2/GDP ratio has increased from 39.3 percent in 1990-91 to 45 percent in 2005-06.Credit to private sector/GDP ratio is also rising from 21.7 percent in 1990-91 to 27.4 percent in 2005-06.

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 vial 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 will distress UBL's financial performance and we can not expect the bank to keep up the hiking performance for the financial year.