UBL Financial Statements
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United Bank Limited UNCONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 2013 U N I T E D B A N K L I M I T E D Directors’ Report to the Members On behalf of the Board of Directors, I am pleased to present to you the 55th Annual Report of United Bank Limited for the year ended December 31, 2013. Financial Highlights UBL achieved a profit after tax of Rs 18.6 billion which is 4% higher than last year 26.9 27.8 and translates into earnings per share of 17.9 18.6 Rs 15.21 (2012: Rs 14.61). On a consolidated basis, UBL achieved a profit after tax of Rs 19.7 billion, an increase of 3% over 2012. PBT PAT The Board of Directors is pleased to 2012 2013 recommend a final cash dividend of Rs4 per share i.e. 40% and a bonus share issue of nil for the year ended December 31, 2013, bringing the total cash dividend for the year 2013 to 100%. UBL has achieved a pre-tax profit of Rs 27.8 billion, a growth of 4% over last year, despite a challenging year for the banking sector where severe spread compression has impacted core revenues. This has been mitigated by a consistent build up in the balance sheet over the year, improved performance by International branches, enhancement in non-mark up based income and significant reduction in provisions against non-performing loans. Net Interest Income 42 7.0% In 2013 asset yields and earnings remained impacted by declining interest 39 6.5% rates which have reduced by 500 bps 6.4% 6.0% 35 over the last 2 years. Regulatory 38.6 5.4% 5.5% 32 changes increasing the minimum rate 5.0% 37.9 payable on savings accounts have 28 4.5% further compressed already declining 25 4.0% margins which reduced by around 100 Rs.B 2012Net Interest Income 2013Net Interest Margin bps to 5.4% in 2013. While rates have begun to shift upwards in the last quarter, the linking of the minimum savings rate to the repo rate will keep margins restricted. U N I T E D B A N K L I M I T E D The impact on earnings from tightening was offset by a growth of over 13.4% in average assets, mainly funded through the acquisition of core deposits. This enabled the Bank to contain the decline in net interest income to 1.6% from Rs. 38.6 billion in 2012 to Rs. 37.9 billion in 2013. Non-Interest Income Non-interest income continued to grow steadily and increased by Rs. 1 billion over 2012 levels to reach Rs 18.1 billion, maintaining its share as a core component of the Bank’s revenues. Fees and commissions posted strong growth of 23% over 2012 to cross the Rs. 10 billion mark this year. Higher transaction volumes led the increase in general banking fees across the retail business segment along with growth in earnings from corporate customers. UBL Omni continued to make a major contribution, more than doubling fee income, along with significant growth in home remittances and cross sell activity including sale of Bancassurance. Timely leveraging of opportunities in line with improved stock market performance resulted in a significant increase in capital gains to Rs 2.8 billion. Foreign exchange income increased by 16% to reach Rs. 2.2 billion as a result of active trading and effective position management. Provisions and loan losses Total provisions declined significantly 6 1.2% with a provision charge of Rs 1.4 billion, 1.0% 1.0% a reduction of 68% over the previous 4 0.8% year. Active recovery efforts against 4.5 0.6% non-performing loans and diligent 0.3% 2 0.4% portfolio management resulted in an 8% 1.4 0.2% reduction in the level of NPLs this year. The Bank stands well reserved with a -1 2012 2013 0.0% Rs. B Total Provisions NCL Ratio coverage ratio of 87%. Cost management In comparison to 2012, administrative expenses were 9.7% higher in 2013. The increase is mainly on account of variable costs which move in line with related transaction revenues. The current year also includes the full cost of the previous year’s branch expansion while spiraling utilities costs and the steep rupee devaluation impacting the costs of overseas operations have also contributed to the increase. On a comparable basis, increase in administrative expenses was contained to below inflation levels as a result of continued cost consciousness. U N I T E D B A N K L I M I T E D Growth in the Balance Sheet UBL’s balance sheet has crossed a Rs.Billion landmark of Rs 1 trillion, growing by 13% 828 over December 2012. This was primarily 698 56 funded by strong growth in deposits 48 which increased by 19% to Rs 828 Billion. The distribution network continues to 772 650 focus on a steady increase in stable core deposits. Average core deposits increased by 17% over 2012. Furthermore, targeted Dec'12 Dec'13 Core Deposits Non Core Deposits mobilization of low cost deposits has resulted in the overall cost of deposits reducing by 47 bps, despite the multiple regulatory increases in the savings rate. The profitable portfolio mix was maintained in 2013 with 70% of total domestic deposits in the low cost tier, driven by a strong CASA ratio which was maintained at 83%. Advances increased by 7% to Rs 391 billion as at December 2013, mainly in the International business, which grew by 15%, reflecting the improved macroeconomic conditions in the GCC. Domestically, the Bank retains its conservative lending stance, with fresh disbursements targeted at quality assets across all segments. The balance sheet remains highly liquid and well positioned to capitalize on lending opportunities as they arise. Strong Capital Ratios The Tier 1 Capital Adequacy Ratio (CAR) of the Bank was 10.0% as at December 2013, calculated under the Basel III framework, lower than as at December 2012 under the Basel II framework, primarily as a result of new capital rules on mutual fund investments. The bank exercised the call option available on TFC IV which now stands fully repaid. During the year, the bank paid interim dividends totaling Rs 6 per share in addition to the Rs 3.5 per share final dividend for the previous year. Consequently, the total CAR stood at 13.3% as at December 2013. The Bank has carried out an assessment of its future capital requirements in accordance with Basel III regulations which are being phased in over subsequent periods, and the existing capital structure comfortably supports future growth. Economy Review Pakistan achieved a landmark during 2013 with the first ever transition from one democratically elected government to another. The election of the pro-business PML-N has brought with it a renewed confidence from both domestic and foreign investors, although the economic landscape remains challenging. The energy supply deficit was aggravated further with the persistent shortage of natural gas, resulting in idle capacity across various industries and a low real GDP growth of 3.6% for FY13. The partial resolution of circular debt by the newly U N I T E D B A N K L I M I T E D elected government has supported the industrial sector during the new fiscal year, as evidenced by a 5.2% growth in Large Scale Manufacturing during Jul-Nov 2013. The trade deficit for H1’FY14 narrowed by 8.7% as compared to the same period last year, as exports increased by 5.1% while imports declined slightly by 1.1%. Workers’ remittances remain a critical source in managing a fragile balance of payments position and exhibited a strong growth of 9.5% over H1 FY’13. During H1’FY14, the current account deficit stood at USD 1.6 billion, significantly higher than the USD 83 million during the same period last year, mainly due to lower Coalition Support Fund proceeds this year. Despite a relatively better financial account performance during H1’FY14, sizeable debt repayments continued to keep the external account position under pressure. Given a relatively weaker balance of payment position along with repayments to the IMF, foreign exchange reserves have declined to USD 8.3 billion by December 2013, with SBP’s reserves touching a decade low level of around USD 2.9 billion before marginally improving to over USD 3.0 billion. This has created significant pressure on the Rupee which depreciated by 8.4% during 2013, with a sharp slide during the third quarter. Given the pressure on the external front and the foreign exchange reserves position, the government has entered into an Extended Fund Facility (EFF) agreement of US$ 6.6 billion with the IMF. Despite receiving the first two EFF tranches, foreign exchange reserves continued to remain under stress as these inflows were offset by IMF repayments due under the previous Standby Arrangement. Subsequent disbursements under the EFF are also subject to meeting tough quarterly performance targets, which includes net retirement of Government borrowing from the SBP, significant increase in Net International Reserves (NIR), ceiling on Net Domestic Assets and a curtailed budget deficit through widening the tax net. A key IMF requirement is the privatization of around 30 entities, to generate foreign flows as well as curtail losses in public sector enterprises. These include listed and profitable entities, where initial or secondary public offerings should generate flows in the short term, as well as large public sector entities which will need to be restructured prior to a potential strategic sale.