Karachi, September 2, 2024 – The National Bank of Pakistan (NBP) reported a significant impact on its deposits following the implementation of the Treasury Single Account (TSA), with a recorded effect of Rs 100 billion.
This was revealed during an analyst briefing held on Monday, where the bank’s management provided insights into its financial performance and compliance with the TSA regulations.
The management of NBP disclosed that the bank has adhered to all aspects of the TSA that have been implemented to date. “Last year, we recorded an impact of Rs 100 billion on our deposits due to the TSA implementation,” said a senior official. The bank remains fully compliant and continues to collaborate with relevant ministries and the State Bank of Pakistan (SBP) for any further actions required.
Financial Performance Overview
The briefing also covered NBP’s financial performance for the second quarter and the first half of the calendar year 2024. NBP reported a loss of Rs 9.12 billion (loss per share of Rs 4.28) for the second quarter of 2024 (2QCY24), a stark contrast to the profit of Rs 15.8 billion (earnings per share of Rs 7.42) reported in the same quarter last year (2QCY23). For the first half of 2024 (1HCY24), total earnings stood at Rs 833 million, a significant drop from Rs 27 billion recorded in the corresponding period of the previous year.
The sharp decline in profitability during 2QCY24 was mainly attributed to the booking of an extraordinary item of Rs 49 billion related to a pension fund case. This expense followed a Supreme Court ruling and actuarial consultation. The bank noted that this charge is final, and further details regarding future recurring expenses will be disclosed as they arise.
Additionally, there is an ongoing pension case where employees are seeking increases based on past federal government announcements. However, NBP remains optimistic about a favorable outcome, citing previous rulings that NBP employees are not classified as federal employees.
Capital Adequacy and Strategic Moves
With the pension liability case now settled, NBP’s management indicated that the bank is in a position to consider resuming dividends. However, they emphasized the need to consider other factors, such as balance sheet growth and avoiding overcapitalization. According to the NBP Act, the bank can only declare dividends along with its year-end results, leaving the final decision to the board.
The bank’s Capital Adequacy Ratio (CAR) currently stands at 24.72%, up from 22.50% in 1HCY23, significantly exceeding the regulatory requirement of 14%. Effective August 1, 2024, the regulatory requirement has been reduced to 13%. The management aims to maintain a buffer of 200-250 basis points above this minimum requirement to ensure financial stability.
In a strategic move, NBP has divested its 45% stake in United National Bank Limited UK (UNBL UK). The gain from this sale is expected to be reflected in the financial results for the quarter ending September 2024.
Advances, Deposits, and Investment Portfolio
NBP reported a 6% decline in gross advances to Rs 1.54 trillion, while deposits surged past Rs 4 trillion, reaching Rs 4.1 trillion by the end of June 2024. Consequently, the bank’s Advances to Deposit Ratio (ADR) stood at 37.5% as of June 2024. The management is focused on increasing the ADR to 50% to avoid additional taxes by year-end and is confident that reaching a ratio between 40% and 50% is achievable.
In 1HCY24, floating Pakistan Investment Bonds (PIBs) accounted for 80% of the total PIBs, down slightly from 81% in December 2023. The T-Bill portfolio increased to 24% of the total portfolio in 1HCY24, up from 22% in December 2023. Additionally, the yield on investments rose to 20.55% in 1HCY24, compared to 18.20% in 1HCY23.
Technological and Operational Enhancements
NBP has undertaken several strategic initiatives to strengthen its position. The bank has made substantial investments in technology, focusing on upgrading its IT systems, including the Core Banking Application, expanding digital offerings, enhancing cybersecurity, and improving equipment and peripherals. Additionally, NBP is committed to improving the ambiance of its branches, with 200 branches already revamped across Pakistan. The bank continues to focus on building stronger customer relationships and managing risks effectively, ensuring a robust and resilient operational framework for the future.
