With the central bank set to announce its monetary policy decision later this month, there is a general feeling among bank investors and analysts that it would be much harder for banks to maintain their last year’s outsized levels of profits this year in the low interest-rate environment.

While it is true that yields on banks’ bread-and-butter investment avenue — Pakistan Investment Bonds — have fallen over the past 4-5 months, many banks have locked higher yields offered by the bonds by grabbing a truckload of those that were issued before monetary easing set in from November 2014.

One of these is United Bank Ltd. The bank’s PIB holdings rose by three times over the year to over Rs312.1bn, from Rs103.5bn by end-2013. Conversely, it reduced its stock of lower yielding Treasury bills to Rs62.6bn from Rs210bn.

The bank’s expansion in the GCC region when oil prices have fallen over 50pc from their last year’s peak can prove to be a double-edged sword

“UBL increased its exposure in PIBs from 24pc of total investments in CY13 to 63pc,” pointed out Ujala Adnan, an analyst at Elixir Securities.

The bank’s unconsolidated profit-after-tax came in at over Rs21.9bn, up 17.8pc from Rs18.6bn in 2013. Its earnings-per-share worked out at Rs17.91, against Rs15.21 in the previous year. It declared a cash dividend of Rs4 per share, taking the year’s total pay out to Rs11.5 per share.

On a consolidated basis, UBL and its subsidiaries recorded an after-tax profit of Rs24bn for 2014, against a profit of Rs19.7bn in 2013.

“The growth has been achieved through balance sheet expansion with improved asset yields, despite margin compression. The international operations continue to provide the bank with diversification benefits and growth within captive markets,” UBL’s directors wrote in their annual report to shareholders.

Advances: In fact, the bank is increasingly relying on its overseas presence to boost corporate lending, as well as to channel remittances back home from the Pakistani diaspora, particularly in the Middle East.

“The bank has increased its exposure to the GCC region on the asset side and taken overseas advances up by 8pc. It is targeting double-digit loan growth in the region going forward, while shedding operations in Yemen,” noted KASB Securities analyst Farid Aliani in a research report.

The bank said in its presentation to analysts and shareholders that its overall corporate loan portfolio grew 16pc to Rs257.5bn in 2014, while growth in the UAE and Qatar also remained high at 16pc.

On the whole, UBL’s net advances (on an unconsolidated basis) reached Rs434.3bn by end-2014, up 11pc from the previous year.

However, expanding the corporate loan book in the GCC region when oil prices have fallen over 50pc from their last year’s peak can prove to be a double-edged sword for the bank.

“UBL, with its extensive geographical diversification, has around 32pc of its loans in GCC economies. The recent oil price slump has raised concerns regarding the potential rise in the bank’s NPLs. However, the management does not see significant NPL accretion from that side, as most of the loans are sovereign-backed,” wrote Taurus Securities analyst Rohit Kumar in a recent report.

Non-interest income: The bank’s wide range of products and services allowed it to pocket sizable fees and commissions from customer transactions.

Income from Omni recorded a sizable growth of 25pc in the year, helping overall non-core income to rise by 6.5pc to Rs19.7bn. Income from fees and commissions crossed the Rs11bn-mark. This was made possible by a 22pc growth in income from the remittance business, which reached Rs1.4bn. The bank commands a 24pc market share in this segment.

“Strong contribution by [non-funded] income makes UBL’s bottom line less sensitive to interest rate changes. Focus on non-conventional banking [products] like Omni, cash-management and bancassurance have translated into sizable increase in fee income,” noted Foundation Securities analysts Nauman Khan and Sonia Agarwal.

Deposits: The bank focused on mobilising non-remunerative current accounts at the retail level in the year; these grew 13.5pc to Rs316bn, helping the bank limit its overall cost of deposits to a meagre 4.4pc. Savings accounts grew by a lesser 12.3pc to Rs313bn, with the bank’s ratio of current and savings accounts (domestic) rising to 85pc from 83pc.

NPLs and provisions: On a worrying note, non-performing loans (NPLs) on the bank’s books (on a consolidated basis) rose 4pc to over Rs57bn by December 2014. Multiple banking analysts attributed this uptick to the bank classifying its toxic loan to Byco as non-performing last year. Moreover, it has not yet booked provisions against this exposure to the oil refinery, availing the extension granted by regulators to book the provisions by June.

As a result, it was able to drop its provisions against NPLs to Rs215m, from a tall Rs1.06bn by end-2013.

By the end of CY14, it was ‘individuals’ who had the highest share in the bank’s NPLs, at Rs13.3bn. The category of ‘production and transmission of energy’ was next, with around Rs7bn, followed by ‘textile spinners’ and ‘textile composites’ with roughly Rs5bn each.

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