IN the run up to United Bank Ltd’s half yearly results announcement, the bank’s stock had rallied to a post-2008 peak, reflecting the market’s confidence in its ability to deliver a strong performance.

And while some of those gains were lost in the broader equity market tumble last week, UBL posted solid results for the six-month period (1HCY14), recording a 27pc yearly growth in bottom line to Rs10.5bn, translating into earnings-per-share (eps) of Rs8.6. Its after-tax profit for 1HCY13 had amounted to Rs8.27bn. The bank announced an interim cash dividend of Rs2.5 per share (25pc), taking its total payout so far this year to Rs5 per share.

On a consolidated basis, UBL and its subsidiaries posted after-tax earnings of Rs11.3bn (eps: Rs9.23), up almost 23pc from 1HCY13.

“Earnings are significantly higher due to revenue growth of 18pc through a deposit-driven increase in the balance sheet, consistently improving fee-based income, and strong trading performance,” the bank’s directors wrote in their report to shareholders.

UBL’s branchless banking arm, Omni, has diversified into loan disbursement and school fee collection, and has been selected by the KP government to provide aid to IDPs

The bank’s core income registered a healthy rise of 14pc to reach Rs40.3bn by end-June. The bulk of this income — or Rs22.2bn — came from investments. Advances contributed only Rs808m to the core income.

Like most of its peers, UBL’s investment book underwent a reshuffling in the period, which saw it increase its holdings of long-tenured Pakistan Investment Bonds at the expense of short-term Treasury bills.

Total PIB holdings stood at around Rs245bn by end-June, up a significant 137pc from last year. Conversely, its T-bill holdings dropped 60pc to Rs94.2bn, from Rs236.2bn.

Meanwhile, the bank’s net advances rose 4.5pc to Rs408.5bn by end-June. “Commodity (up 27pc) and corporate advances (up 12pc) [were] growth areas, where a few large ticket loans (including project financing in energy chain) helped drive momentum,” wrote KASB Securities analyst Farid Aliani in a recent research note.

“Liquidity generated through domestic deposits was mainly diverted to higher lending....with growth in the corporate loan book [and] higher commodity financing,” the bank said.

Deposit growth: The bank’s deposit base expanded by a modest 3.6pc to Rs857.5bn by end-June. However, its current accounts grew by a healthy 12.8pc to Rs314bn, while high-cost fixed deposits simultaneously declined 7pc to Rs215.6bn. Savings accounts rose by a marginal 1pc to Rs281.2bn by June 30.

This limited the rise in the bank’s interest expenses to 9.2pc, and they reached Rs19.1bn in 1HCY14. Resultantly, its net interest income clocked in at Rs21.2bn, up 18.6pc from last year.

“[The] growth in average current accounts has enabled the bank to contain the increase in the domestic cost of funds to 44 basis points, despite a sharp increase in the rate paid on savings accounts as a result of various regulatory changes during 2013,” UBL said.

However, Aliani pointed out that the current account numbers are inflated, as Ramazan began in the last week of June, with many customers temporarily shifting their savings and other deposits into current accounts to avoid mandatory Zakat reduction.

Quarterly provisions: The second quarter saw the bank hike its provisions against toxic investments by a big 146pc to nearly Rs247m, leading to a 15pc increase in overall quarterly provisions to Rs811.9m over the same quarter last year.

However, for the six-month period, total provisions declined 15.4pc to Rs996.7m. The bank said recoveries led to a 2.7pc reduction in non-performing loans to Rs51.2m, while its coverage ratio improved to 86.2pc from 83.8pc.

Non-interest income: UBL’s non-core operations continued to supplement the core side of the business, with non-interest incomes rising by a healthy 16.3pc to Rs10bn.

This was a result of big growth in income from fees and commissions (up 20pc to Rs5.55bn), dividends (up 44pc to Rs1.04bn) and forex dealings (up 80.5pc to Rs1.4bn).

Within this segment, the customer base of UBL’s branchless banking unit — Omni —expanded by 7pc in the second quarter over the first quarter, leading to an 11pc rise in transaction volumes.

The bank said Omni has diversified into loan disbursement and school fee collection activities, besides providing cash disbursement services to polio eradication field officers across the country. Its network now includes around 17,000 shops across over 800 towns and cities.

The bank also added that Omni “has been selected by the Khyber Pakhtunkhwa Disaster Management Authority to provide aid disbursements to internally displaced persons”.

UBL also had a sizable share in the growing home remittances pie, with income from the segment growing 32pc in the half-year period.

Meanwhile, non-interest expenses rose 10.2pc to Rs14.36bn, mainly as a result of a 9.3pc growth in administrative expenses. However, ‘other charges’ more than doubled to Rs114.8m from Rs55m last year.

However, the bank’s Shahriah-compliant business seemingly had a rough run through 1HCY14, reporting a net loss of over Rs132m, against a profit of Rs18.8mn last year.

The UBL stock of par value Rs10 has risen 33pc so far this year (till last Tuesday), outpacing the benchmark KSE-100 Index’s return of 10.5pc, and ended the day at Rs175.28 per share.

Published in Dawn, Economic & Business, August 18th, 2014