Analysis of Market (Largest five banks)

Habib bank limited, National bank of Pakistan, United bank limited, allied bank limited and the MCB
bank are collectively referred to as the bog five of the local banking industry. They hold 56% of the total
banking deposits in the country. The financial performance of these banks is the benchmark for the rest
fo the banking industry as well as for the other financial institutions in the country.

Profitability:

The banks have benefited from the growing exposure in the government securities in the presence of a
huge pool of low-cost deposits along with high levels of KIBOR. UBL has been a leader with an increase
of 36% in net profits.

Markup Revenues:

The top five’s revenue climbed by 15% to PKR 279 Billion. In this category MCB was the leader with 23%
increase in the mark up revenue. The improved revenue was mainly from the expansion in earning
assets since the combined investment pool reached PKR 1404 billion. ABL is the most aggressive in the
accumulation of the investments portfolio which rose by 71% to PKR 207 billion. This resulted in a jump
of around 21% in its investment to deposit ratio (IDR) which stood at 54%. MCB had the highest IDR of
around 54% while NBP’s was the lowest at 32%.

The big five continued to shy away from lending as their total advances fell by 2% to PKR 1720 billion.
The big five’s Advances to Deposit Ratio (ADR) stood at 57% which is still 25 higher than the total
industry’s average. NBP has been an outlier in this category as it increased its exposure to advances at
the cost of its investment portfolio.

Markup Expenses:

Deposit expansion resulted in higher markup expenses as the combined deposit base jumped by 4% to
PKR 3025 billion. MCB is leading in this category with 12% expansion in its deposit base. NBP’s case was
the opposite as its deposits fell by 4% .Current and savings account ratio (CASA) of the big five eased
down to 68.5% from 69.4%. MCB has the highest CASA ration of 79%.

Net Markup Income:

Higher earnings lifted the combined net interest income by 15% to PKR 154 billion. The big five’s average
gross spread ration stayed at 55%. The banking industry spread averaged out at 7.64% as compared to
7.43%.

Non Markup Income and Expenses:

The big five recorded a massive jump in their investment banking revenues. MCB’s non-core banking
revenues rose by 32% followed by UBL and ABL at around 23%.
Along with that inflationary pressures coupled with investment in technology up-gradation and
expansion in infrastructure has lifted non-markup expenses.

However, the average income to expenses ration remained intact at 2.4. MCB’s income to expense ratio
remained the highest among the group of big five banks.

Non-Performing Loans:

In the face of stagnating advances the banks continued to face expansion in non-performing loans.
Collective toxic loans reached PKR 271 billion marking a jump of 20%. NBP has been the worst performer
in this category as their toxic loans shot up by 36% from the last year to PKR 118 billion.

The remaining four big banks witnessed relatively lower growth in toxic loans ranging between 85 to
12%. NBP’s infection ration jumped to 20.4% from 16%. ABL has been the best performer with the
lowest infection ration of 8.2% amongst the big five.

In light of growth in toxic loans the big five’s average coverage ratio eased down by around 5.8% to
69.5%. The abrupt fall is due to a significant drop in NBP’s coverage ratio which fell to 56.2% from
70.5%.

Outlook:

The government’s thirst for funds is not likely to be quenched any time soon because of populist
measures being undertaken in the run-up to the next general elections. As the government’s ability to
borrow from the central bank limited by legislation, the big five commercial banks remain the leading
lenders for the Government of Pakistan. Therefore the banks will probably continue to capitalize on the
risk free investments window. The big five will continue to park their investments with the government
until the overall economic conditions improve which shall prompt the change in direction of the
investments towards the private sector. In the mean time the banks are vying for expansion in
alternative banking channels to cater the market through cost effective channels.