NBP strengthens its balance sheet through building provisions

Sher Afzal

KARACHI: Meeting of the Board of Directors (BoD) of National Bank of Pakistan was held on February 28, 2020 at the Bank’s Head Office in Karachi. The BoD approved standalone and consolidated financial statements of the Bank for the year ended December 31, 2019.

The Bank recorded solid growth in terms of both balance sheet size and income generation. Despite a generally difficult year for the banking industry, net mark-up / interest income closed 18.5% higher YoY at Rs. 71.9 billion (2018: Rs. 60.7 billion). NBP maintained its non-mark-up/interest earning at Rs. 36.20 billion. Accordingly, total income of the Bank closed at Rs. 108.11 billion i.e. 11.5% higher than Rs. 96.92 billion of prior year. Total expenses for the year amounted to Rs. 65.70 billion against Rs. 55.69 billion for the year 2018. This amount includes a total of Rs. 7.3 billion related to extraordinary items. Thus, the increase in operating expenses was only 5.0% and YoY growth in profit excluding extraordinary items and before provisions improved to 21%.

Reflecting the trend of asset quality deterioration observed across the industry this year, the Bank experienced a 11.4% increase in non-performing loans. During the year, the Bank provided against NPLs, diminution in investments and certain financial improprieties. Based on the above, provision charge amounted to Rs. 14.2 billion, and profit before tax stood at Rs. 28.00 billion, being 5.7% lower than Rs. 29.68 billion for the prior year. NBP has consequently focused on strengthening its Balance Sheet through this provisioning and through building contingency buffers for a total of Rs. 21.5 billion.

Due to retrospective applicability of super tax, this year, the Bank’s tax burden amounted to Rs. 12.35 billion, resulting into the Bank’s profit after tax closing at Rs. 15.8 billion, 21% lower YoY. This translates into earnings per share of Rs. 7.43.

Total assets closed at Rs. 3,124.39 billion, depicting a 11.6% growth from Rs. 2,798.56 billion a year before. Gross advances increased by 8.7% to Rs. 1,151.31 billion, investment closed 12.1% up at Rs. 1,417.65 billion, and deposits grew by 9.3% to Rs. 2,198.05 billion.

The Bank is facing contingencies related to pensionary benefits of its retired employees, and has filed a review petition. Pending the decision for review petition, financial impact of the subject case has not been included in the instant financial statements as the Bank looks forward to a favourable outcome of the case.

The BoD is conscious of the fact that the shareholders look forward to receiving a dividend.

The Board deliberated at length whether or not cash dividend should be recommended. Keeping in view the significance of the amount involved in the pension related case, the Board of Directors (BoD) considered it prudent to retain the profits for the time being to maintain & further strengthen capital base of the Bank. Accordingly, the BoD did not recommend any dividend for the year 2019.

Going forward, the year 2020 marks the Bank’s 71st year of service to the Nation.

The Bank’s business strategy is evolving to ensure a focus on inclusive development through reaching and supporting underserved sectors including SME, Microfinance, Agriculture Finance, and finance for Micro-Housing on a priority basis.

Building a technology platform and digital banking capability will be a central part of this strategy as will the inculcation of a performance driven culture within the institution.

The emphasis for 2020 will be on building a strong platform in terms of processes and controls based on accountability and meritocracy.