Karachi July 26 2023: United Bank Limited (UBL) sufficient capital buffer over regulatory requirements made hefty dividend payout by bank a reality.
Bank declared cash dividend of Rs 22 per share for H1’23.
Bank share price gain 46.37% since start of this calender year.
The overall CAR stood at 16.9% at Jun’23 (Dec’22: 19.2%), a buffer of 4.9% over the minimum regulatory requirement of 12.0%. The Common Equity Tier 1 (CET-1) ratio stood at 11.9% at Jun’23 (Dec’22: 13.4%). Total Tier 1 Capital ratio was measured at 12.8% at Jun’23 (Dec’22: 14.4%).
On a standalone basis, UBL recorded Profit After Tax (PAT) of Rs. 26.3 billion for H1’23 versus a PAT of Rs. 11.9 billion for H1’22. Earnings per share (EPS) was measured at Rs. 21.50 for H1’23 (H1’22: Rs. 9.69).
On a consolidated basis, UBL recorded PAT of Rs. 27.5 billion (H1’22: Rs. 12.2 billion). The consolidated EPS was measured at Rs. 22.01 for H1’23 (H1’22: Rs. 9.77).
On a standalone basis, UBL recorded Profit Before Tax (PBT) of Rs. 50.6 billion for the half year ended June 30, 2023, with strong and consistent growth of 48% year on year.
The Bank’s gross revenues were recorded at Rs. 81.1 billion for H1’23, with an increase of 36% year on year. Net mark-up income stood at Rs. 68.9 billion for H1’23, a strong growth of 53% versus last year. Non-markup income of Rs. 12.2 billion was earned in H1’23 (H1’22: Rs. 14.7 billion), with fee based revenues maintaining the overall business momentum during the year.
The bank’s operating expenses stood at Rs. 29.9 billion for H1’23, with an increase of 24% over H1’22, as a result of higher inflation levels and reinvestment across core businesses. Cost to income ratio improved to 36.9% for H1’23 as against 40.3% in the corresponding period of last year.
The bank recorded a net provisioning reversal of Rs. 0.5 billion for H1’23, mainly due to strong recoveries across both domestic and international, while maintaining prudent coverage levels on its loans and investment portfolios.
Net Markup Income
Net markup income was recorded at Rs. 68.9 billion for H1’23, with a significant growth of 53% year on year. The bank’s total asset base averaged Rs. 3.0 trillion in H1’23, growing by 22% year on year. Bank level Net interest margins (NIMs) were measured at 5.5% for H1’23 (H1’22: 4.5%).
The State Bank of Pakistan (SBP) increased the policy rate over the last one year from 13.75% at Jun’22 to 22.0% at Jun’23. This was to counter the effects of rising inflation, also driven by the increase in global commodity prices and weakening in the domestic currency.
Benchmark interest rates averaged over 20% in H1’23 versus 12.4% in H1’22, which along with timely repositioning within the asset base, improved margins over the corresponding period of last year.
Domestic CASA deposits averaged Rs. 1.5 trillion for H1’23, with a growth of 13% year on year, with a portfolio increase of Rs. 167 billion. The average CASA to total deposits ratio continued to strengthen and was measured at 90.3% in H1’23 (H1’22: 87.2%). The bank added 474,000 new current account relationships in H1’23 as against 303,000 in the corresponding period. This resulted in average current deposits recording a growth of 16% year on year to Rs. 802 billion in H1’23. Resultantly, the average current to total deposits ratio improved to 48.3% in H1’23 from 45.2% in H1’22.
The domestic portfolio of savings accounts averaged Rs. 698 billion in H1’23, with a steady increase of 9% year on year. The domestic cost of deposits was measured at 8.2% as against 5.1% in the corresponding period of last year, thus remaining relatively well contained despite the sharp increase in interest rates in the last 12 months.
Bank level performing advances averaged Rs. 754 billion for H1’23, growing by 18% year on year. Domestic performing advances averaged Rs. 610 billion for H1’23, with an increase of 21%, with a cautious build up mainly across the Corporate and Islamic segment. The Islamic loan book increased by a healthy 28% over the corresponding period of last year to average Rs. 80 billion in H1’23.
The bank’s markup earning investments averaged Rs. 1.7 trillion for H1’23, growing by 23%. The domestic government securities floating rate portfolio stood at a yield of 22% as at Jun’23.
Non-Markup Income
The bank recorded non-markup income of Rs. 12.2 billion in H1’23 and contributed 15% to the total revenues of the bank (H1’22: 25%). Fees and commission income of Rs. 8.8 billion was earned in H1’23, recording a strong growth of 13%. UBL maintained its leadership position in the domestic home remittances space with a market share of above 22%. As a result, commission income of Rs. 1.2 billion was earned in H1’23, with a growth of 22%. Income from debit and credit card fees of Rs. 1.6 billion was earned in H1’23, in line with last year. Commission income from cash management was recorded at Rs. 619 million for H1’23, growing by 20% year on year. The bank earned foreign exchange income of Rs. 6.9 billion for H1’23 as against Rs. 4.6 billion last year with better customer and interbank flows, well supported by proactive balance sheet positioning.
Provisions and loan losses
UBL recorded a net provision reversal of Rs. 0.5 billion for H1’23 as against a net provision charge of Rs. 0.8 billion in the corresponding period last year.
UBL International’s NPLs stood at USD 296.2 million at Jun’23 (Dec’22: USD 296.5 million). Specific coverage maintained at 87.1% at Jun’23 (87.5% at Dec’22).
Domestic NPLs reduced by Rs. 1.4 billion since Dec’22, from Rs. 26.2 billion at Dec’22 to Rs. 24.8 billion at Jun’23. Domestic bank’s asset quality stood at 4.4% at Jun’23 (Dec’22: 3.3%).
Bank level non-performing loans (NPLs) stood at Rs. 109.5 billion at Jun’23, (Dec’22: Rs. 93.3 billion). The increase is mainly due to the impact of currency devaluation on UBL International NPLs portfolio. Bank level asset quality increased from 9.2% at Dec’22 to 14.0% at Jun’23, while specific coverage was maintained at 87.3% at Jun’23. (Dec’22: 87.6%).
Cost management
Improving operational efficiencies remains a key focus for UBL. The bank is continually striving to optimize its cost base, while improving service delivery through greater investment in human capital as well as its IT infrastructure to support the needs of a large-scale network.
UBL’s operating expenses were recorded at Rs. 29.9 billion for H1’23, growing by 24% as a result of higher inflation levels impacting all areas. Employee compensation was recorded at Rs. 11.8 billion for H1’23, with an increase of 26% owing primarily to better staff levels across the branches as well as merit increases. Premises expenses were recorded at Rs. 4.5 billion, growing by 14%. IT expenses recorded an increase of 41%, impacted by the steep devaluation in the PKR on foreign currency denominated contract. Other variable operating expenses were recorded at Rs. 10.1 billion for H1’23, up by 23%, in line with increased business volumes as compared to last year.
Capital Ratios
The bank seeks to maintain a strong capital base that provides a solid foundation for future growth as well as maintaining adequate buffers over regulatory requirements.
In the latest assessment carried out by SBP in December 2022, UBL has been classified as a Designated Domestic Systemically Important Bank (D-SIB). The Bank is required to meet the Higher Loss Absorbency (HLA) capital surcharge, in the form of additional Common Equity Tier 1 (CET-1) capital of 0.5% on a standalone and consolidated basis. As a result of the updated assessment, the minimum capital requirement for UBL has increased to 12.0%.
The overall CAR stood at 16.9% at Jun’23 (Dec’22: 19.2%), a buffer of 4.9% over the minimum regulatory requirement of 12.0%. The Common Equity Tier 1 (CET-1) ratio stood at 11.9% at Jun’23 (Dec’22: 13.4%). Total Tier 1 Capital ratio was measured at 12.8% at Jun’23 (Dec’22: 14.4%).
