UBL has shown a tremendous growth over the years with a CAGR of 9% from CY08 to CY13.

It
assets had entered into the trillion Rupees bracket preceding Habib Bank Ltd & National Bank of
Pakistan. The performance of the bank had witnessed an impressive growth due to change in the
strategy by the new President and CEO of UBL Wajahat Hussain in focusing towards low cost of
funds and utilizing it efficiently and effectively through significant investment in Government
Securities (Market Treasury Bills & Pakistan Investment Bonds) because of high yield offered on
it.
UBLs deposits stand at Rs. 895 Billion as per CY14, which represents 10.5% share in total
deposits of the banking sector. A decline was witnessed in the fixed deposits (CY13: 28%, CY14:
25%), and an improvement in the current deposits (CY13: 35%, CY14: 36.4%) making their
contribution to 37% in the total deposits. This change was mainly driven by UBL strategy to
reduce the funding cost. This has resulted in increase of domestic CASA ratio to 75% in CY14
while total CASA ratio trails around 72%. The strategy has been successful not only in reducing
cost of funds from 4.8% in CY12 to 4.2% in CY13 but also immunizes against declining interest

rates. We expect CASA ratio to remain at the current levels resulting in cost of funds to reduce to
3.8% with spread stabilizing at 4.3% by CY19.

Moreover, internationally the price of crude oil had been declining drastically which had pulled
down inflation rate in single digits and as a result it had reduced the interest rate in the financial
institution. In Pakistan, the custodian which is the State Bank of Pakistan had also declined its
yield rate but majority the top tier banks had already anticipated and locked its spread by
investing into higher yield and simultaneously increasing their deposit base with enhancement in
low cost current and saving account to 75% in CY14 as compared to 55% in CY09.
UBL ultimate focus was to do prudent lending to those clients which has the risk absorption
capacity and their risk profile is known because of strong regulation imposed by the regulator in
maintaining its Capital Adequacy Ratio (CAR), Statutory Liquidity Ratio (SLR), Cash Reserve
Requirement (CRR) and Minimum Capital Requirement (MCR) after the Basel II framework
implementation. Therefore, advances were growing at a stable rate, however, the lending were
only done selectively and ensured a strict compliance to be met through strong collateral security
pledged. As a result, UBL had been able to curtail its non-performing advances effectively and
smoothen its spread (Difference between Yield on Asset and Cost of Fund).

The bottom line of the bank has shown an upside growth where the net income has inclined to
PKR 18.6 Billion in CY13 emanating from an increase in Fee, commission, brokerage and
exchange income to PKR 12.2 Billion in CY 13 as compared to PKR 10.02 Billion in CY12.
UBL continued to maintain its profitability over CY14, with an impressive growth of 12.5% in
its total assets on account of continuous build up in core deposits (average growth of 6% in
CY14). This funding resulted in an increase in earning assets with performing loan book
increasing by over 15% through exposure in commodity financing and corporate loans. The
investment portfolio also increased by approximately 12% due to significant increase in PIBs
that has helped in supporting the bottom line while maintaining liquidity.

The NPAT for UBL over the past 4 years showed an aggressive growth and reached from Rs.
9.19 billion in CY09 to Rs. 18.6 billion in CY13, mainly due to the growing net interest margin,
rising participation from investment income (increased investment in high yielding PIBs), the
robust growth in non-interest income (grown at a CAGR of 19.46%) that primarily includes
growth fee, commission and brokerage income, improving asset quality (infection ratio at 11.6%
in 3Q14).
Despite of the recent decline in NIMR (from Rs.37 billion in CY13 to Rs. 32 billion in 3Q14)
due to high floor rates set by SBP and the continued banking sector spread compression (dropped
to 5.16% in CY13 from 6.29% in CY12).

The total markup revenue received a major

contribution of 52.8% from interest earning investments in CY13 that witnessed a tremendous
growth over the years (increase of 13% in 3Q14 from last 3Q13). Going forward, we expect
NIMR in the medium term to show a CAGR of 8% by CY19 owing to an almost stable interest
earning yield emanating from investments in government securities and performing advances.

Non-Interest Income is a robust contributor in UBLs bottom line with a five year CAGR of 18%.
Apart from usual dividend income and capital gains, a notable share is coming from
remuneration on services with major drivers being UBL Omni branchless banking and home
remittances. The total contribution of these services stands at 58.94% of non-interest income. We
expect UBL to capitalize on its fee based revenues and given the competitive advantage of UBL

Omni and an expected increase in inland remittances, the non interest income is likely to register
an average growth of 11% by CY19.