Bank: UNITED BANK LIMITED - Analysis of Financial Statements Financial Year 2004 - 2001 Q 2010

Tuesday, 18 May 2010 12:30

OVERVIEW : United Bank Limited, together with its subsidiaries, offers commercial banking and related services in the United States, Pakistan, Europe, and the Middle East. The bank operates in corporate finance, trading and sales, retail banking, commercial banking, and asset management segments. {loadposition content_adsense300}It operates 1,119 branches, including 5 Islamic banking branches, a branch in Karachi Export Processing Zone, and 17 branches outside Pakistan. It was founded in 1959 and is headquartered in Karachi , Pakistan . As seen from the table, the growth rates for almost all of the components have been lower than their industry averages for FY09. On the contrary, UBL outperformed the industry averages in FY08. RECENT RESULTS 1Q10

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Growth RatesUBLIndustry

Averages

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2008 2009 2008 2009

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Profits After Tax -1% 14% -4.37% 26.07%

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Bank: UNITED BANK LIMITED - Analysis of Financial Statements Financial Year 2004 - 2001 Q 2010
Tuesday, 18 May 2010 12:30

Advances24% -4.00% 22.89% 4.75%

Deposits21% 2% 12.98% 10.03%

Investments1% 18% -8.69% 33.53%

Net Interest Income 17% 18% 15.98% 19.69%

Non Interest Income 16% 18% 75.05% 21.12%

Return on Assets -13.11% 7.57% -13.72% 4.02%

UBL achieved a profit after tax of Rs 2.8 billion which is 10% higher than the corresponding period last year and this translates into earnings per share of Rs 2.50 (March 2009: 2.28). Net interest income grew by 3% whereas non-interest income increased by 7% mainly on account of higher commissions on cash management, trade income and the higher dividend income. As a result, operating revenue is up by 4% to Rs 10.6 billion as compared to last year. FINANCIAL PERFORMANCE (DECEMBER 2004 - DECEMBER 2009) Macroeconomic vulnerabilities continued in 2009, with the first half of the year witnessing high inflation and interest rates, liquidity pressures and loss of business confidence. However, gradual signs of stability have emerged with most key indicators reflecting positive trends including reduction in inflation, contained government borrowings, contraction in external imbalances and easing of the monetary policy stance. PROFITABILITYDespite this fragile operating environment, UBL has achieved profit after tax of Rs 9.5 billion, which is 12% higher than the corresponding period last year translating into earnings per share of Rs 8.56 (December 2008: Rs 7.51). Net interest income before provisions grew by 16% to Rs 33.2 billion from the same period last year reflecting an increase in Net Interest Margins of 40 basis points to 6.5% in 2009 and 8%

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Bank: UNITED BANK LIMITED - Analysis of Financial Statements Financial Year 2004 - 2001 Q 2010
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increase in average interest-earning assets. Net provisions at Rs 13.5 billion are up by 64% from the corresponding period last year primarily due to higher provisioning on the corporate and international portfolios. Net provisions also include Rs 1.1 billion impairment loss booked on equities. However, the key point to note is the declining trend in NPLs formation and an increase in coverage ratio from 68% to 71% in the subsequent quarters from June 2009. Non-interest income continued its steady growth by 18% to Rs 13.0 billion, which is a testatment to UBL s diverse income streams. Even though fee and exchange income declined year on year, this was offset by strong growth in capital gains and derivatives income. Fee and commission income decreased by 7% to Rs 6.7 billion due to reduction in consumer and corporate lending, however, this was partially compensated by higher commodity commission and income from increased trade activity. Exchange income declined from Rs 1.7 billion to Rs 1.3 billion as the bank was able to capitalize on the significant exchange rate volatility in 2008. This year, bank s emphasis has been more on servicing existing clientele where spreads have reduced due to aggressive competition. Capital gain increased to Rs 697 million reflecting the strong performance of the stock market in 2009, which was up 63% on a YoY basis. In addition, derivative income contributed a healthy Rs 1.7 billion to the non-interest income. Administrative expenses increased by only 7% over the corresponding period last year. This is in spite of significant inflationary pressures with average 2009 inflation coming in at 13.9%. Nearly half of this increase is attributed to increases in premises expenses due to higher utilities and insurance expenses across the branch network. LIQUIDITYLiquidity of the bank has slightly decreased as compared to last year. About 80% of the total assets of the bank are comprised of its earning assets (lending to financial institutions, investments and performing advances) as compared to 83% in FY08. Performing advances forming a major chunk of the earning assets showed a 3% declined from last year to Rs 349.715 billion. Total deposits increased marginally by 2% to Rs 504 billion primarily due to the bank s conscious strategy of shedding expensive deposits. Expensive deposits decreased by Rs 27 billion to Rs 197 billion at year-end 2009. As a result, the proportion of current and savings account deposits in total deposits (CASA) increased to 67% (Domestic CASA at 75%) at year-end 2009 from 59% at 2008. Deposits this year saw a change in mix relying more on low cost deposits to form the deposit base. Domestic low cost deposit mix improved from 60% in 2008 to 66% in 2009. As a result of shedding domestic high cost fixed deposits by 12%, market share decreased from 9.6% in December 2008 to 8.8% in December 2009. Advances were rationalized during the year leading to a reduction in fresh lending to stand at Rs 362 billion, lower by 4% as compared to the corresponding period last year. Lending in the consumer and corporate portfolio was controlled as a result of liquidity constraints, attributing to this decrease. The market share concurrently dropped from 9.2% in December 2008 to 8.8% in

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Bank: UNITED BANK LIMITED - Analysis of Financial Statements Financial Year 2004 - 2001 Q 2010
Tuesday, 18 May 2010 12:30

December 2009. The advances to deposits ratio decreased from 77% in December 2008 to 72% in December 2009. EARNING RATIOSTotal assets have grown this year by Rs 20 billion (up 3%) to Rs 640 billion over the corresponding period last year, with investments increasing by 20% to Rs 138 billion. UBL was able to maintain the return on average assets of 1.5%, the same level as of last year. Deposits grew by 2% to Rs 504 billion. Whereas low cost deposits increased by 14%, this was offset by a 12% reduction in expensive deposits. Profit after taxation increased by 14% to Rs 9.488 billion resulting in an increase in return on deposits from 1.72% in FY08 to 1.88% in FY09. Equity of the bank has risen by more than 50% to Rs 67.318 billion in FY09. There was a huge increase in surplus on revaluation of assets from Rs 1.64 billion in FY08 to Rs 9.12 billion in FY09. This resulted in a decrease in return on equity from 19% in FY08 to 14% in FY09. Over the years UBL s yield on earning assets has been increasing but at the same time the cost of funding them has also risen. Yield on earning assets improved from 10.24% in FY08 to 12.04% in FY09. The cost of funding earning assets increased from 4.73% in FY08 to 5.55% in FY09. ASSET QUALITYThe bank s non-performing loans in FY09 exceeded the level of NPLs in FY08. It grew from Rs 27.839 billion in FY08 to Rs 39.101 billion in FY09. There has been a major increase in NPLs in the consumer and commercial business and this factor can affect the future profitability of the bank. UBL s rising NPLs are in line with the banking industry trend. NPLs have risen mainly in the agriculture and consumer sectors. Managing credit risk is the main challenge faced by UBL. UBL has taken notice of the deteriorating asset quality and taken measures to improve the risk management, control and collection systems. New policy initiatives have been implemented for assessing debt burden and repayment abilities of customers together with more stringent credit verification processes. The bank is allocating more resources towards the collections area and recovery lines. Consumers have 21% and the textile sector 16% of total advances of the bank. Tight monetary policy, rising inflation are decreasing the debt serving ability of the consumers while the textile sector s performance has been dismal. Non-performing loans to advances ratio increased from 7.5% to 10.8% over the year. Provisions to NPLs also increased from 16.2% to 24.7%. SOLVENCY The solvency position of UBL improved in FY07. The equity to asset ratio and equity to deposit ratio increased in 2007 because the equity of the bank increased as 161.875 million ordinary shares were issued, raising the share capital of the bank from Rs 6.5 billion in FY06 to Rs 8.1

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Bank: UNITED BANK LIMITED - Analysis of Financial Statements Financial Year 2004 - 2001 Q 2010
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billion in FY07. Along with the share capital, the reserves of the bank increased to Rs 10.3 billion. The earning assets to deposits ratio had increased because the earning asset (excluding non performing advances) of the bank has been growing at a faster pace than the deposits. During FY08, the equity to deposit and equity to asset ratios were more or less maintained, however, the earning assets to deposit ratio decreased because the deposit base increased by a major 21% while earning assets experienced a less than proportionate increase of 16% because of a decrease in investments. For FY09, equity to assets showed a major jump from 7.25% to 10.51%. Equity of the bank increased from Rs 49.4 billion to Rs 67.3 billion mainly due to the increase in unappropriated profits and reserves. Equity to deposits also increased from 9.75% in FY08 to 10.51% in FY09. The deposit base increased by 4% while equity increased by 38%. Earning assets to deposits showed a major decline back to the level of FY06 due to the decrease in performing advances, which form a major part of the earning assets. DEBT MANAGEMENT UBL had successfully stabilized its debt to equity ratio up until FY05. It had fallen after that due to rise in equity base. It then increased during FY08 due to a 15% increase in the total liabilities of the company with less than proportionate increase (3.4%) in the equity base of the bank. However, it again decreased from 12.79 to 8.51 in FY09. This decrease is a result of increase in equity by 38% over the previous year with only an increase of 2% in total liabilities. Deposits time capital decreased from 10.25 to 8.88 due to the increase in assets by 6%. Debt to asset also decreased from 0.93 to 0.89 as a result of increased assets. DIVIDEND PAYOUT The Board of Directors recommended a cash dividend of Rs 2.50 per share ie 25% and bonus issue of 10% for the year ended December 31, 2009. The cash dividend in FY08 was Re. 1 per share ie 10%. This resulted in an increase in dividend yield from 2.31% in FY08 to 3.90% in FY09. Dividend cover reduced from 8.31 to 3.42 times due to the higher DPS in FY09. MARKET VALUEPrice-to-earnings ratio increased by 29% from 5.80 in FY08 to 7.50 in FY09. This was due to the increase in share price from Rs 43.3 to Rs 64.1. Market to book value ratio increased from 1.00 to 1.10 over the year. FUTURE OUTLOOKDuring the year, State Bank of Pakistan continued to gradually ease monetary policy by reducing the discount rate by 250 bps from 15 percent at the start of the year to 12.5 percent in December 2009. These measures led to a substantial decrease in inflation from as high as 24.7 percent in November 2008 to 10.5 percent in December 2009. The lowering of interest rates should provide impetus for future lending and should also improve asset quality, which were impacted by the high borrowing rates. With the stock market registering a 63% YoY growth, narrowing current account deficits and strengthening foreign

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Bank: UNITED BANK LIMITED - Analysis of Financial Statements Financial Year 2004 - 2001 Q 2010
Tuesday, 18 May 2010 12:30

exchange reserves, we expect the economy to continue to stabilize and recover in 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, building on our non fund income streams, risk management and restructuring of affected assets.

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UBL

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2004 2005 2006 2007 2008 2009

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EARNINGS RATIOS

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Return on Assets (%)1.36% 1.71% 2.24% 1.59% 1.38% 1.48%

Return on Deposits (%) 1.61% 2.06% 2.83% 2.10% 1.72% 1.88%

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Bank: UNITED BANK LIMITED - Analysis of Financial Statements Financial Year 2004 - 2001 Q 2010
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Return on Equity (%)21.32% 27.46% 31.71% 19.81% 19.00% 14.09%

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ASSETS QUALITY RATIOS

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NPL to Advances13.95% 8.28% 6.57% 7.35% 7.50% 10.80%

Provisions to NPLs2.17% 7.53% 12.14% 24.96% 16.20% 24.67%

Non Performing Loans (Rs in bn) 20.103 16.960 16.255 22.012 27.839 39.101

NPLs Growth 6.27% -15.63% -4.16% 35.42% 26.47% 40.45%

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MARKET VALUE RATIOS

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Price to Earnings- - 13.00 18.40 5.80 7.5

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Bank: UNITED BANK LIMITED - Analysis of Financial Statements Financial Year 2004 - 2001 Q 2010
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Market Value to Book Value - - 3.70 3.40 1.00 1.1

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DEBT MANAGEMENT RATIOS

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Debt to equity14.70 15.02 13.18 11.50 12.79 8.51

Deposit times capital 12.81 13.31 12.11 10.18 10.25 8.88

Debt to asset0.94 0.94 0.93 0.92 0.93 0.89

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LIQUIDITY RATIOS

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Earning assets to assets 78.13% 81.27% 80.33% 82.95% 84.33% 79.73%

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Bank: UNITED BANK LIMITED - Analysis of Financial Statements Financial Year 2004 - 2001 Q 2010
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Advance to deposit57.85% 67.17% 72.42% 74.27% 75.80% 74.26%

Yield on earning assets 4.34% 7.15% 9.70% 9.33% 10.24% 12.04%

Cost of funding earning assets 0.81% 2.14% 3.57% 3.85% 4.73% 5.55%

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SOLVENCY RATIOS

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Equity to assets (%)6.37% 6.24% 7.05% 8.00% 7.25% 10.51%

Equity to deposits (%) 7.80% 7.51% 8.25% 9.82% 9.75% 11.26%

Earning assets to deposits (%) 92.50% 97.52% 101.49% 182.83% 180.36% 101.35%

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DIVIDEND PAYOUT RATIOS

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Bank: UNITED BANK LIMITED - Analysis of Financial Statements Financial Year 2004 - 2001 Q 2010
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Dividend yield 2.92% 2.11% 1.84% 2.31% 3.90% -

Dividend cover 3.68 4.87 2.77 8.31 3.42 -

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Courtesy: Business Recorder

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