KARACHI: Despite the higher taxes and lowest discount rates, the UBL bank announced its consolidated earnings of Rs 6.9 billion in second quarter 2016, up 27 per cent year-on-year against the market expectations. The bank also announced cash dividend of Rs 3 per share against its earning of Rs 5.7.
The analysts were expecting that the profit of the banks will decline by 20-25 per cent because of the low deposits rates and discount rates which have been declined by 75 basis points in last one year, but the banks show 27 per cent increase in its profit.
The government decided in June to keep the “one-time” super tax of 4 per cent on the income of banking companies – first imposed in the last federal budget – for another fiscal year.
Analysts expect the super tax to be more painful for banks this time around because higher profits in 2015 should result in the super tax having a more profound impact in 2016.
Net Interest Income (NII) of the bank remained the major earnings driver as NII grew by 11 per cent to Rs 16.2 billion, despite 75 basis points fall in policy rate on YoY basis. The analyst believe that strong deposit growth and major investment in Pakistan Investment Bonds (PIBs) have led to strong NII growth.
UBL booked provisioning reversal against Non-performing loans (NPLs) to the tune of Rs 846 million in 2nd quarter 2016 as against provisioning of Rs 1.2 billion in same period last year, which was contrary to expectations. Consequently, the bank booked total provision reversal of Rs 275 million as against provisioning of Rs 1.2 billion last year.
Non Interest income of UBL was down 6 per cent YoY to Rs 6 billion mainly due to lower other income, which was down 65 per cent to Rs 213 million.
On the other hand, non-interest expense was up 4 per cent to Rs 9 billion, led by higher admin expense.
On QoQ basis, earnings were down 27 per cent mainly due to lower capital gains during the quarter and levy of super tax. Capital gains in 2nd quarter 2016 stood at Rs 826 million vs Rs 3.9 billion in 1st quarter 2016. Effective tax rate in 2Q2016 increased to 48 per cent vs. 36 per cent in 1Q2016. NII on QoQ basis was up 16 per cent to Rs 16.2 billion, said Umair Naseer, analyst at Topline brokerage house.