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Review of NBP’s quarterly report

Analysis of Quarterly Report of National Bank of Pakistan (NBP) published September 30, 2020 showed that during the Covid-19 pandemic, the Bank’s focus is to sustain its income streams also asset quality, while creating liquidity for its clients so that the workers continue to get paid their wages and businesses carry on their operations uninterruptedly. The financial experts of NBP also explained that given the Bank’s systemically significant role in Pakistan’s financial system, the management of the Bank has to ensure its resilience to shocks while continuing to support the communities it serves. The report also showed that because of continuation of factors dominated through pandemic, Pakistan’s GDP growth rate reduced to -0.4 percent in FY20 and is now projected to increase approximately 2 percent in FY21 as business confidence has enhanced and demand indicators are explaining an uptick. Triggered through a hike in food prices, headline inflation accelerated to 9.0 percent in September 2020, averaging 8.8 percent during first quarter of FY21.

Financial Performance (Rs ‘Bn)
DetailsSep ‘20 Sep ‘19
Total Revenue107.5779.43
OPEX and Other Charges45.0041.36
Profit before-provision62.5738.07
Provisions/Write-off (Net)23.308.89
Profit before-tax39.2729.18
Profit after-tax26.1316.33
Source: NBP

The State Bank of Pakistan and the present Government of Pakistan have taken initiatives to keep inflation well-anchored within the proclaimed range of 7 to 9 percent during FY21. The current account recorded a surplus of USD 792 million for the first quarter as against to a deficit of USD 1,492 million during the corresponding period previous year. This was reflective of the rise in home remittances to a record USD 7.1 billion in Q1-FY21, 31 percent higher than Q1-FY20. This helped in replenishing SBP’s forex reserves to the pre-pandemic level of around USD 12.8 billion. Prioritising growth and employment, SBP has encouraged private sector credit through gradual reductions in the policy rate by a total of 625 bps from 13.25 to 7.0 percent and by permitting many refinance facilities. The report also explained that during this period private sector credit demand remained low and the banking sector advances registered a 2 percent drop from the December ‘19 level. As deposits grew through 15 percent, the banks opted to invest in government securities. Asset quality has, however, emerged as a main concern as the economic slowdown undermined borrowers’ payback capacity and led to a rise in NPLs across the banking system.

The financial experts of NBP also identified that as of September 30, 2020 the Bank’s balance sheet reached at Rs 2,783.5 billion which is 10.9 percent down from Rs 3,124.39 billion at December 31, 2019. This drop is mostly because NBP reduced its money market borrowings by Rs 329.16 billion in line with its funding & liquidity position during the period under review. On the liability side, the Bank’s balance sheet is driven through its wide market outreach and branch banking network where the focus remains on low-cost deposit mobilization. It is also recorded that the management of National Bank of Pakistan sustains an investment portfolio diversified across zero risk weighted treasury instruments and bonds, high dividend yielding equities and other interest-bearing financial instruments. As of September 30, 2020, investments (at cost) amounted to Rs 1,338.4 billion, just over one-half of the Bank’s balance sheet. The Investment portfolio-mix gives the Bank flexibility to capitalise on short-term price movement by frequently churning the short-term portfolio. The report also identified that gross advances of the bank amounted to Rs 1,060.5 billion; being 7.9 percent down lower against December 2019 level. The drop was because of reduced private sector credit demand and some seasonal adjustments in commodity financing. The Bank is pursuing a prudent strategy for its loan book growth across its target market. The loan book is predominantly in local currency (93.3 percent), and is fairly diversified. Given the Bank’s systemically important role in Pakistan’s financial system, the Bank is following a strategy to strengthen its resilience to shocks while continuing to support the communities it serves. At end-September 2020, the loan infection ratio reached at 16.3 percent. Domestic NPLs reached at Rs 128.8 billion representing 74.6 percent of the total NPLs.

In the analysis of quarterly report published September 30, 2020, the financial experts of the Bank also analyzed that the Bank maintains an optimum level of funding and liquidity. As of September 30, 2020, deposits closed at Rs 2,174.9 billion. Average deposits rose by Rs 246.7 billion or 14.3 percent to Rs 1,974.3 billion. The majority of the Bank’s funding comes from core customer deposits that contribute 89 percent of the Bank’s total deposits. Compared to December 31, 2019 level, customer deposits have grown by Rs 138.3 billion or 7.7 percent. FI deposits, however, dropped during the period under review by Rs 161.4 billion and closed at Rs 239.4 billion. The Management of Bank is pursuing a prudent deposit mobilisation strategy, CASA ratio enhanced to 83.0 percent from 81.8 percent at the year-end 2019. The Bank’s liquidity coverage ratio reached at 182 percent, and the Net Stable Funding Ratio also reached at 263 percent, comfortably above the statutory requirement of 100 percent.

The report also analyzed that higher profitability and earnings retention, coupled with the reduction in the conservation buffer and the RWAs has enhanced the Bank’s Tier-1 capital adequacy ratio to 15.68 percent and total capital adequacy ratio to 20.75 percent. The Bank’s capital and related ratios remain well above minimum regulatory requirements.

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