Research Analyst
Oct 26 - Nov 01, 2009

Standard Chartered is the largest international bank in Pakistan. After the acquisition of Union Bank in September 2006, the new entity Standard Chartered Bank (Pakistan) Limited was incorporated in Pakistan on 30 December 2006 as a subsidiary of Standard Chartered PLC.

The bank has a network of over 162 branches in Pakistan. Standard Chartered employs a workforce of over 9,000 employees in its Pakistan operations. In consumer banking, Standard Chartered provides mortgages, credit cards, personal loans, auto loans, Islamic banking, and wealth management products.

In order to maximize customer convenience, the bank offers 24-hour phone banking, eStatements, SMS banking, ATM cards and Visa debit cards, as well as online banking and state of the art branches while wholesale banking provides transactional banking, debt capital markets, corporate finance, derivatives & Fx Options, commodity finance, and deposit products.

INDICATORS JUNE 30,2009 DEC 31,2008
Paid up capital 38,716 38,716
Equity 44,215 44,010
Deposits 189,947 174,552
Advances (net) 123,192 125,601
Investments (net) 66,128 29,587
Revenue 11,924 11,780
Non markup expenses 6,613 5,896
Operating profit 5,311 5,884
Profit before tax 295 2,054
Profit after tax 205 1,311
EPS (Rs) 0.05 0.34

The bank prudently continues to pave its way forward through the difficult economic situation with increased focus on deposit mobilization, selective growth in high quality lending assets, cost rationalization and improving quality of customer services.

The bank has increased its deposit base by 9% from PKR175 billion at Dec 31, 08 to 190 billion at June 30, 2009. This growth in deposits is represented mainly by a 12% increase in relatively low cost current and savings accounts. Gross wholesale advances have registered an increase from PKR 86 billion at Dec 31, 08 to PKR 92 billion at June 30, 09. This increase has been partially offset by the reduction in gross consumer advances by 11% from PKR 52 billion at Dec 31, 08 to PKR 46 billion at June 09, mainly due to tightening of credit in unsecured consumer credit, prudent risk management policies, and recoveries.

Overall revenue was marginally up by 1% despite the difficult business environment. Gross interest income recorded an increase of 18% over the corresponding half year, despite the reduction in high yield unsecured consumer lending. Gross interest expense for H1 09 has increased 57% in comparison with H1 08, mainly on account of the imposition of an interest rate floor of 5% on saving deposits by the State Bank of Pakistan with effect from June 08.

Moreover, the decline in income on derivative transactions owing to changing market dynamics also contributed to the overall decrease in revenue.


During H1'09 the economy has made significant progress in bringing down the large trade and fiscal deficits, which has helped to contain inflation and build Fx reserves. The inflationary cycle is finally coming to an end, with headline inflation decelerating to 13.1% YoY in June 09, down from peak levels of 25% in Oct 08.

Similarly, the current account deficit has come down to USD 8.5 billion (5.5% of GDP) in FY09 compared to USD 14 billion (8.5% of GDP) in FY 08. The sharp decline in international commodity prices, combined with record high remittances of USD 7.8 billion (increase in 21% YoY) helped to contain the large current account deficit and increase FX reserves from USD 6.5 billion at the end of Oct 08.

Foreign investment of USD 46 million was witnessed in the stock market in June 09, reversing 18 months of capital flight.

However, while economic indicators are pointing towards an improved business environment, it has not yet translated into high growth. High inflation, tough measures taken under the IMF programme, and the rising costs of deteriorating law & order are crippling the economy.

GDP growth declined to 2% in FY09 (July 08 to June 09), from an average growth of 7% in the past 6 years. The weak performance has also hit the banking system, with nearly 40% of all bank credit concentrated in the manufacturing sector.

NPLs of the banking sector have increased sharply to 12% of total loans as of Mar 09 from 7% in FY 08. The infected loans portfolios made banks more risk aversive, prompting them to cut back credit lines and limit their exposures to industries. As a result, credit growth slowed more sharply than expected.

The policy focus has now shifted from controlling inflation to supporting growth. The state bank of Pakistan had cut the policy rate by a 100bps in April 09, followed by another 100 bps reduction in Aug 09. This indicates that there is a confidence that the gains made in correcting the large fiscal and external deficits are sustainable and that inflationary pressures would subside further going forward.

Similarly, the budget FY10 outlines an aggressive spending plan to stimulate the economy. The government projects that high fiscal spending combined with significant easing of monitory policy will stimulate the economy, with output increasing by 3.3% in FY10 compared to 2% in FY09.

However, risks remain high due to ongoing law & order crisis and the rising commodity prices. The economic recovery is expected to be slow and will depend heavily on the large aid pledges to be materialized in the near future.


The growing pressure on asset quality due to persistent high levels of interest rates continues to translate into increased bad debt provisioning. The deteriorating quality of loans has been the key issue for the banking industry over the past two to three years. Loss coverage ratio of 79% at the end June 09 is highest which can give banks potential credit losses.