Karachi August 29 2023: National Bank of Pakistan reported profit of PKR 26 billion for the first half 2023 which is 114.3 percent up when compared with last year, according to bank filing to the Pakistan Stock exchange.
Share price of the bank drop 1.4 percent at PSX as it skips dividend despite strong financial performance.
For the half-year period under review, your Bank earned Gross Interest Income ‘GII’ of PKR 432.3 billion as against PKR 179.4 billion for the corresponding half-year period of 2022. The PKR 252.9 billion increase in GII was achieved through a volumetric growth in average interests bearing assets coupled with the favourable impact of average policy rate during H1’23 that stood higher by 814bps at 19.36 percent as compared to 11.23 percent during H1’22. During this period, the Bank’s investments averaged PKR 3,623 billion (H1’22:PKR 2070.0 billion) and generated a mark-up/interest income of PKR 327.0 billion being PKR 212.7 billion or 186 percent up against PKR 114.3 billion for H1’22. This translates into average yield at 18.2 percent (H1’22:11.14 percent). In the rising policy rate environment, maturity profile of the Bank’s investment book is skewed as a strategy towards the shorter duration securities. Similarly, placements, that averaged PKR 82.6 billion (H1’22: PKR 109.3 billion) generated a mark-up income of PKR 7.2 billion (H1’22: PKR 5.9 billion) at an improved yield of 17.65 percent as compared to 10.9 percent for H1’22.
The Bank’s loan book generated a mark-up income of PKR 98.1 billion i.e. PKR 38.9 billion or 65.7 percent higher than PKR 59.2 billion of H1’22. This too was achieved through both, a volumetric growth by PKR 120.1 billion, as well as the favourable rate variance with particular growth observed in SME/Commercial and retail loan portfolios. Pertinent to mention, this growth in income was achieved despite the Bank carrying a higher proportion of lower-margin and non-performing loans of certain state-owned entities.
Likewise, on the back of higher average policy rate, the Bank’s cost of funds for H1’23 also stood higher at PKR 359.2 billion as compared to PKR 126.3 billion in H1’22. This increase of PKR 232.9 billion or 184.4 percent was mainly contributed by an increase in cost of Deposits by PKR 73.9 billion and the borrowings/repo cost by PKR 159.4 billion. While average cost of deposits stood higher from 6.36 percent in H1’22 to 11.19 percent in H1’23, total cost of funds increased from 7.8 percent to 14.8 percent. Consequently, the Net Interest Income ‘NII’ for the period under review closed at PKR 73.1 billion, depicting an increase of 37.7 percent against PKR 53.1 billion of H1’22.
Non-Fund Income ‘NFI’ for the H1’23 also recorded a YoY increase to close at PKR 19.0 billion which is PKR 0.67 billion or 3.7 percent higher than PKR 18.4 billion of H1’22. However, it remained lower than expectations due to prevailing market conditions. While fee & commission income recorded a YoY increase of 2.6 percent to close at PKR 10.5 billion (H1’22:PKR 10.2Bn), the dividend income increased by PKR 0.4 billion or 21.8 percent to close at PKR 2.4 billion. On the other hand, while FX income decreased by 4.9 percent to close at PKR 4.1 billion as against PKR 4.3 billion for H1’22, capital gains also recorded a drop by PKR 0.16 billion or 15.1 percent to close at PKR 0.9 billion (H1’22:PKR 1.1 billion). This drop was partially off-set through higher compensation booked for delayed tax refunds. Going forward, the NFI is expected to rebound as the stock market is showing stability following the recent developments with bolstering forex reserves.
Amidst the high inflationary pressures, operating expenses of the Bank for the half-year period under review amounted to PKR 43.9 billion which is 22.6 percent higher YoY as compared to PKR 35.8 billion for the similar period last year. HR cost that constitutes around 64.3 percent of the total operating expenses, amounted to PKR 28.2 billion depicting a YoY increase of PKR 5.3 billion or 23 percent. While property related expenses amounted to PKR 5.1 billion (H1’22:PKR 4.3 billion), IT related expenses amounted to PKR 3.5 billion (H1 ’22: PKR 2.7 billion) as the Bank is diligently upgrading its IT infrastructure through core banking system and major software maintenance.
Positively, despite an increase in the operating costs, the Bank’s cost-to-income ratio for the half-year ended June 30, 2023 stood improved to 47.6 percent as against 50.1 percent for the similar period last year under a prudent cost control strategy. Therefore, the increase observed in the operating expenses incurred during the period are in line with the inflationary pressures and industry norms.
The Bank prudently identifies impairments in its assets portfolio under the expected credit loss model and maintains a robust level of provisions as per the applicable regulatory requirements. During H1’23, the Bank’s gross non-performing loans increased by 7.0 percent to reach PKR 219.7 billion from PKR 205.3 billion on Dec 31, 2022 mainly due to PKR depreciation on overseas NPLs.
These translate into loan infection ratio at 14.5 percent (Dec’22:14.3 percent). Gross NPL ratio stands high as the Bank carries a significant amount of legacy NPLs. 5 Accordingly, for the half-year period under review, net provision charge amounted to PKR 0.4 billion i.e. significantly lower by 76.2 percent or PKR 1.3 billion as compared to PKR 1.7 billion for the corresponding half-year period of 2022. The key contributor towards this reduction was the loans & advances that recorded a net reversal of PKR 0.95 Billion. Specific and General provisions held against NPLs stood at PKR 204.1 billion (Dec’22:PKR 190.7 billion) and PKR 16.7 billion (Dec’22:PKR 17.3 billion), respectively. Thus, provision coverage at June 30, 2023 stood high at 92.9 percent.
Taxation charge for the period amounted to PKR 21.6 billion as against PKR 21.7 billion for H1’22. Effective tax rate for the period is 45.4 percent as compared to 64.2 percent of the similar period last year. For H1’22, effective tax rate was higher due to ADR related taxation which has been done away with for the current tax year and booking of prior year provision due to retrospective impact of changes in taxation law. Consequently, profit after-tax for the half-year period ended June 30, 2023 stood at PKR 26.0 billion i.e. PKR 13.9 billion or 114.3 percent higher than PKR 12.1 billion for H1’22. This translates into Earnings per Share of PKR 12.23 as compared to PKR 5.71 for H1’22.