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State-owned National Bank of Pakistan (NBP) has paid Rs49 billion to pensioners on the directives of a court, which reduced its net profit by 99% to Rs251 million in the first half of current calendar year compared to Rs26 billion in the same period of last year.
At a corporate briefing on Monday, the bank management announced that it aimed to launch credit cards next year after remaining among the top debit card issuers in January-June 2024.
The bank, however, has a low advance-to-deposit ratio (ADR) of 37.5%, which could lead to an additional tax of up to 16% in case the ratio stays below the required level of 50% before the current business year ends on December 31, 2024.
After attending the briefing, Topline Research analyst Sunny Kumar said in a commentary that the NBP had diverted Rs100 billion from government-run accounts in the bank to the State Bank of Pakistan's (SBP) centralised Treasury Single Account in phase-I.
NBP has also sold its 45% stake in the United National Bank Limited, UK, where the bank booked capital gains of around Rs6 billion.
It bore the pension cost of Rs49 billion in the second quarter (April-June) of 2024 in line with Supreme Court's decision.
There are no other major chunks remaining pertaining to previous pension costs, however, there will be recurring pension costs. Though the management did not disclose the exact amount, it highlighted that the recurring cost would roughly be half of what was previously accounted for, ie, Rs13 billion and "appropriate disclosures will be made in due course."
There is still one pending pension case against the NBP, where a few employees went to court for increase in pensions, as announced by the federal government in previous years, according to the Civil Services Act.
"However, the bank is confident that the decision will come in its favour, based on past rulings where NBP employees were not considered federal employees and the NBP did not fall under the Civil Services Act."
In a recent press statement, NBP said the pension settlement "would bring a longstanding uncertainty to an end."
Kumar quoted the bank management as saying that the NBP was actively working to widen its product portfolio and was expected to introduce credit cards in 2025.
The bank's ADR stood at 37.5% as of June 2024 but the management stressed that it was working to improve it to the targeted level of 50% in order to avoid the additional tax.
"They highlighted that the 40-50% threshold is well within reach and could be easily achieved," the analyst said.
There are two ways to improve the ADR – by advancing loans to the private sector or by cutting down on deposits.
Insight Research added that the bank management might opt for reducing deposits to avoid the additional tax of up to 16%.
Any decision to pay dividends to shareholders would be made by the board, "considering the growth strategies and availability of capital," it said.
The management clarified that, as per the NBP Act, the bank could only announce dividends along with full-year results.
"The bank is also required to obtain SBP's permission before announcing a dividend."
NBP has borrowed Rs2.4 trillion from the SBP through open market operations, "where it is earning a positive spread of 0.5%," according to Kumar.
The analyst said that despite the pension cost, the capital adequacy ratio of the bank stood at 24.72%, which was significantly higher than SBP's requirement.
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