United Bank Limited (UBL) 1Q2020 conference call takeaways

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United Bank Limited (UBL) held a conference call for Analysts and Investors today. The management reviewed 1Q2020 results and gave guidance regarding the future outlook of the bank. Key highlights of the conference call were:

-Overall NPLs increased by 12.6%Q/Q to PkR86.3Bn. Domestic NPLs increased by PkR3.7bn largely driven by one big name in the power sector. On the international front, UAE based client went bankrupt overnight driving NPL’s on international book up by USD3mn. Moreover, currency devaluation contributed approx. PkR3.4bn to the total NPLs. The bank is closely monitoring its loan portfolio and is receiving loan restructuring requests on daily basis.

-Fee income was down 16%Y/Y largely driven by absence of commission on BISP program. The bank no longer has the BISP contract with it. Bank expects fee income to remain under pressure going forward due to closure of some of the branches. Currently 80% of the branch network in operational.

-The bank expects to maintain its annual payout ratio which stands at 50%-60%. For this year, despite restriction by the central bank to pay out dividend in the 2Q&3Q2020, the bank is expected to payout the dividend for 2Q-3Q2020 in 4Q2020.

-Deposit growth is expected to remain steady due to increase in currency in circulation as central Bank is expected to pump more money into the system.

-On the investment side, the bank holds PkR256bn fixed rate PIBs with blended yield of 9.4%. Moreover, floating rate PIB portfolio stands at PkR190bn with the yield of 14%. In its international bond portfolio, the bank largely hold Pakistan’s Sovereign euro bonds with yield of 6%. PkR14bn of unrealized impairment on international bond portfolio is temporary as it is largely on sovereign bonds portfolio.

-Digital initiatives will remain top priority of the bank. The bank has witnessed 35% increase in registration via its digital platform. The bank has invested USD50mn in its digital initiatives. The bank is trying to convert the traffic to its digital platform as COVID 19 has affected the operations.

-The effect of sharp monetary easing in the recent times will be fully reflected in NIMs by 3Q-4Q2020 as the bank’s corporate loan book will take 3 to 4 months to reprice. However, loans to SME, agri and consumer sector will reprice early as per directive of the central bank. Loans to SME, consumer and Agri constitutes only 10% of the loan book.

-The bank expects a further rate cut of 100-200bps in the DR. The bank’s lending will remain conservative going forward and ADR is expected to remain at this level (44% as at 1Q2020) however, we might see an uptick in the IDR going forward.

KASB Research

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