Research Analyst
Jan 24 - 30, 2011

United Bank Limited (UBL) is a banking company engaged in commercial banking and related services. The bank has 1,121 branches, including five Islamic banking branches, one branch in Karachi Export Processing Zone and 17 branches outside Pakistan.

The bank has four business segments: corporate banking includes services provided in connection with mergers and acquisition, underwriting, privatization, securitization, research, debts, equity, syndication, initial public offer and secondary private placements. Trading and sales includes fixed income, equity, foreign exchanges, commodities, credit, funding, own position securities, lending and re-purchase and prime brokerage. Retail banking includes retail lending and deposits, banking services, trust and estates, private lending, deposits, banking service, and trust and estates investment advice and merchant/commercial/corporate cards. Commercial banking includes project finance, real estate, export finance, trade finance and factoring.


Lending to financial institutions 16,348,102 23,162,130
Investments 159,831,959 136,145,524
Advances 334,832,651 354,091,713
Deposits and other accounts 491,249,451 492,036,103
Equity 65,380,075 60,936,723
NPLs 46,373,889 39,101,396

UBL posted profit before tax of Rs12.92 billion in 3Q10, 29.87 per cent higher than Rs9.95 billion in the corresponding period last year. Meanwhile, profit after tax stood at Rs8.06 billion in 3Q10, with an earning per share (EPS) of Rs6.58. Net profit margin of the bank was 1.54 per cent, one of the lowest in the industry and well below the average of the big five banks of 1.82 per cent.

Meanwhile, the interest margin of the bank was 57.99 per cent, above the average of the big five banks of 56 per cent, indicating a lower ratio of interest expense as compared to the industry. The net interest margin was 140.58 per cent, lower than the average of the big five banks of 148.77 per cent.

The bank's earnings ratios are worse than the averages of the big five banks. Return on assets (ROA) was 1.30 per cent, one of the lowest in the industry.

Earning assets constitute 82.19 per cent of total assets while, advances to deposits is 68.16 per cent.

In comparison with the big five banks of Pakistan, the earning assets to assets ratio of UBL is average indicating effective use of capital to raise earning assets. Assets to deposit ratio (ADR) of UBL is close to the maximum limit set by SBP of 70 per cent. As expected, deposits of the banks decreased 0.15 per cent since the end of FY09 to rise to Rs491.24 billion. Shifts from fixed deposits and savings deposits to non-remunerative current accounts were seen.

United bank finances 89 per cent of its total assets with debt and 11 per cent with equity.

Equity amounts to 13.31 per cent of deposits while earning assets are 104.02 per cent of deposits. Compared to the other banks, UBL is more leveraged and more insolvent in the short-run, however, its assets and deposits are being utilized best.

Despite this fragile operating environment, UBL has achieved profit after tax of Rs9.5 billion, which is 12 per cent higher than the corresponding period last year translating into earnings per share of Rs8.56 (Dec 2008: Rs7.51).

Net interest income before provisions grew by 16 per cent to Rs33.2 billion from the same period last year reflecting an increase in net interest margins of 40 basis points to 6.5 per cent in 2009 and 8 per cent increase in average interest-earning assets.

Capital gain increased to Rs697 million reflecting the strong performance of the stock market in 2009 which was up 63 per cent on year on year (YoY) basis. In addition, derivative income contributed a healthy Rs1.7 billion to the non interest income.

Administrative expenses increased by only seven per cent over the corresponding period last year. This is in spite of significant inflationary pressures with average 2009 inflation coming in at 13.9 per cent. Nearly half of this increase is attributed to increases in premises expenses due to higher utilities and insurance expenses across the branch network.

Moreover, the current fiscal year began with concerns over the large budgetary deficit (6.3 per cent of GDP in June 2010), servicing of the gargantuan IMF loan ($11.3 billion), escalating inflation (15.7 per cent in September 2010), and domestic political issues. With the economic growth rate expected to hover around 2.5 per cent for at least the next couple of years, the loss of massive agricultural output and the ensuing shortages caused in related industries, the current economic condition of the country is at its worst in the last six decades.


Pakistan is South Asia's poorest performing economy and its gross national income growth rate is one-third that of India and half of that of Bangladesh. While food inflation is expected to stabilize in coming months, given the likely increase in electricity prices, introduction of RGST and increasing dependence of the government on borrowings from SBP for deficit financing, the high inflationary pressures are likely to persist in FY11. Considering the challenges to the economic stability, the SBP raised the policy rate consecutively by 50bps each in its past two monetary policy announcements in July 2010 and September 2010. For UBL the key focus areas in 2010 will be liability management, acquisition of quality assets, controlling costs and improving efficiencies, right sizing the consumer business, risk management and restructuring of affected asset.