The National Bank of Pakistan — the country’s second-largest, with over Rs1.27 trillion in total assets — is among the 31 state-owned entities that the government decided to privatise last year.

Yet, it is not among the three banks whose shares are intended to be offloaded in the first round of privatisation.

Unlike other banks in which the government has minority stakes, NBP is 75 per cent owned by the state, which also retains management control. Apart from being a commercial bank for public and private entities and individuals, NBP also handles treasury transactions for the government as an agent of the State Bank of Pakistan (SBP). It also serves as a trustee for the National Investment Trust.

The bank’s exclusion from the first round of privatisation would give its new CEO and chairman some time to clean up its books of toxic assets, which impacted its financial performance in calendar year 2013 (CY13).

The highlight of the bank’s financial performance was the almost three-time increase in its provisions against non-performing loans (NPLs), which rose to Rs12.14 billion in the first nine months of 2013 (9MCY13), from Rs4.5 billion in 9MCY12.

Total provisions reached Rs11.97 billion, slightly helped by a reversal in diminution in the value of investments by Rs1.08 billion. Its net interest income (after provisions) dipped by a full 37 per cent YoY to Rs16.37 billion.

Total non-performing assets rose by 7.7 per cent to Rs95.57 billion in 9MCY13. On the other hand, total NPLs of all banks and DFIs dropped by about Rs8.8 billion in the January-November 2013 period, according to Syed Asad Ahmed at Foundation Securities.

While providing details, NBP said in its third quarterly report that its total provisions would have been higher had it not been accorded a relaxation by the State Bank for provisioning against its exposure to Azgard Nine and Agritech Ltd.

The bank also said it availed the benefit of forced sale value against non-performing investments.

Meanwhile, some analysts have lately predicted that the bank might record some reversals when it releases its fourth quarter results.

The bank’s stock fluctuated between a low of Rs37.40 and a high of Rs61.25 in the year-to-date period. It closed last week at Rs58.38.

Relatively lower deposit rates during most of 9MCY13 also partially helped National Bank to control its interest expenses, which rose by a negligible 0.45 per cent YoY to Rs44.52 billion.

Yet, the bank’s core income also declined by 3.2 per cent to Rs72.86 billion. This compares with a meagre drop of 0.76 per cent in gross advances, which reached Rs724.57 billion by end-September 2013.

The bank’s net interest income (before provisions) clocked in at Rs28.34 billion, down 8.3 per cent from Rs30.91 billion.

Nonetheless, NBP managed to boost its non-interest income by 14.6 per cent to Rs18.2 billion during the period under review. This was due to healthy growths in banking and brokerage fees and commissions (up 13 per cent to Rs7.89 billion), gain on sale of securities (up 40 per cent to Rs3.4 billion) and other income (up 68 per cent to Rs1.94 billion).

But this was countered by an 11 per cent YoY growth in the bank’s non-interest expenses, which clocked in at Rs26.5 billion by period-end. Some analysts attributed this to the 27 new branches opened in 9MCY13. The banks network extended to about 1,321 domestic and 23 oversees branches by end-September 2013.

All of this led National Bank to post a profit-after-tax of Rs6.25 billion in 9MCY13, down a full 50 per cent from Rs12.57 billion in 9MCY12. Its earnings-per-share (eps) came in at Rs2.94, down from Rs5.91.

Third quarter result: Most of the provisions against NPLs — to the tune of Rs5.62 billion — were booked by the bank in the three months ended September 2013.

The bank reported an after-tax profit of Rs225.3 million, down significantly from Rs4.37 billion last year. Its net interest income after provisions slipped to Rs3.78 billion, from Rs8.24 billion.

Going forward, it remains to be seen to what extent, will the policy rate hikes announced by the central bank in the previous quarter have an impact on NBP’s net interest income.

For, Farrukh Khan at KASB Securities pointed out that banking spreads actually dipped to an almost nine-year low of 6.02 per cent in December 2013, from 6.24 per cent in November.

“The decline in spreads was primarily owing to a 16bps MoM increase in the cost of deposits to 5.05 per cent. This rise has been driven by a higher minimum rate on savings deposits, which reset to seven per cent effective December 1, 2013, from the rate hike in mid-November,” said Khan.

He added that Rs220 billion worth of deposits raised in December due to ‘year-end effect’ also contributed to the higher cost of funds for banks.

“Interestingly, the yield on loans has actually declined by 3bps since September 2013, despite a 100bps increase in the discount rate since then. This highlights the lagged impact of loan re-pricing,” said the analyst.— Ali Raza Mehdi