OVER the past few years, commercial banks have gone heads-over-heels to pump up their investment books with government securities.

In contrast, NIB Bank went the other way: it loaded up its balance sheet to the brim with advances, to the point where non-performing loans (NPLs) became a major impediment in its efforts to post big profits and expand.

NIB boasted an advances-to-deposit ratio of 89pc and an unenviable NPL-to-loan ratio of 24.7pc by end-2014 — the highest among listed private commercial banks, according to an analysis of top 20 banks by Topline Securities.

The bank’s new management is working to clean up the loan portfolio by focusing on making recoveries and restricting new advances to blue chips and large corporate customers

The bank kick-started CY15 by reporting a meagre 1.8pc rise in its unconsolidated after-tax profit for the first quarter (1QCY15), which reached Rs290.4m, against Rs285.2m in 1QCY14. This translated into earnings-per-share of Rs0.03, virtually unchanged from last year.

On a consolidated basis, the bank reported net earnings of Rs13.9m, down from Rs422.9m in 1QCY14.

The first quarter performance followed a worse CY14, when the bank posted a loss of Rs507.8m (on an unconsolidated basis) just as the overall banking industry recorded its most profitable year.

Nonetheless, there are hopes that the arrival of Atif Bokhari at the bank’s helm as president and CEO would steer it towards more profitable years. He had held the top job at United Bank Ltd for around 10 years and transformed it into a retail giant with an enviable digital imprint.

“He brings a lot of experience to NIB, particularly retail experience, which the small bank desperately needs. So that might be one area where the bank would focus, given its slow deposit growth,” commented one senior market watcher.

The bank’s directors sure hope so, as they wrote in their first quarter report that “the recent organisational changes, coupled with a single-minded focus on sales, service and cross-sell, are expected to address the gap between NIB’s current performance and its true potential given its branch footprint and infrastructure. While the primary focus remains revenue growth, the bank is also looking at rationalising costs across all businesses and support functions”.

Advances: There are already signs that the new management is actively working to clean up the bank’s advances portfolio by focusing on making recoveries and restricting new loans to blue chips and large corporate customers.

This was reflected in the 9pc quarterly drop in net advances to Rs85.3bn by end-March. However, NPLs also went up in the quarter to Rs29.15bn. This led the bank to book provisions against bad debts to the tune of Rs116.2m in 1QCY15, against a reversal of Rs141.65m in 1QCY14.

Meanwhile, the bank appeared to have at last decided to follow its peers by boosting its investments. After dropping in CY14 from the previous year, the bank’s net investments grew almost 7pc on a quarterly basis to Rs64bn by March 30.

Deposits: Another major concern has been the bank’s inability to record much deposit growth. A principle reason for the outlandish profits recorded by commercial banks of all sizes the past few years has been their ability to shore up low-cost customer deposits and earn easy money from the banking spread.

But that has not been the case with NIB. In CY14, the bank’s deposit base stayed virtually unchanged at Rs105bn. This came about as the industry’s deposits went up 11pc. And in the first quarter of this year, its deposits actually dropped to over Rs104bn.

The highest chunk of these deposits (39pc) were in savings accounts, followed by 33pc in current accounts. However, the multiple cuts in interest rates over the past few months, which simultaneously brought down banks’ deposit costs, helped NIB Bank keep its interest expenses in check. These went down slightly to Rs2.6bn, helping the bank’s net interest income to rise by 36.5pc to Rs1.17bn in the quarter.

PICIC: As the bank starts to ‘rationalise costs,’ it is also looking at a few potential suitors for its fully owned asset management arm, PICIC Asset Management Company Ltd. PICIC had over Rs9.3bn in assets under management in six funds by the end of March.

For funds open at least a year, PICIC’s two conventional equity funds, despite posting positive returns, remained the second- and third-worst performing over the past 365 days among their peers, according to Mutual Funds Association of Pakistan data accessed last Saturday. However, its money market fund was the second-best performing in the same period.

Despite that, the subsidiary had contributed much-needed dividend income of Rs510m to the bank in CY14 — nearly half of NIB’s total income from dividends in the year.

Yet, given the fact that the bank has been facing difficulties in shoring up customer deposits, and that it and PICIC are both essentially competing for the same deposits, it would make sense for NIB to sell the AMC if it receives a worthwhile offer.

Published in Dawn, Economic & Business, May 4th, 2015

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