United Bank Limited (UBL) Earnings Call Transcript & Summary

Good day, everyone, and welcome to UBL's Third Quarter 2021 Results Conference Call. We have the pleasure of having with us Mr. Aameer Karachiwalla, Group CFO; and Mr. Arif Saifie, Financial Controller and Head of IR; and Mr. Imran Sarwar, the Chief Risk Officer at UBL. The format of today's call is going to be similar to what we have been doing. Arif will run through the key highlights of the results, and then we'll open the floor for Q&A. With that, I would want -- I would like to transfer the call on to Arif to take us through the financial results.

Okay. Good afternoon, and [indiscernible] to everyone. Thank you so much for joining the UBL third quarter results call. And thank you, Murad, for hosting it as always. So we'd just like to take you through some of the highlights of the bank's performance. [ Rather for questions to ] just open up the investor presentation. Maybe we can just start and run through some of the performance highlights from Slide 4. So overall, we've had 49% growth in our PBT in the first 9 months of the year. Two or three key things that we'd just like to mention on this slide is that, now, the ROE of the bank is in the range of 20%. And that ROE range we've had for the last 2 quarters, so that signs of the high return elements coming back into the overall profile of the bank. Apart from that, the results have been on the back of some very strong NFI growth and, of course, cost control and provision reversals. We've maintained our dividend payout levels, but the overall payout, of course, has increased versus last year. And the performance is the backbone of the bank, bank income used to be a cornerstone. There are 2, 3 areas that we are a lot more excited about than we were earlier. I think one of it is the [indiscernible] banking and our digital overall, where it has crossed PKR 1 trillion in terms of throughput, which is up 55%. This is also very promising, and we'll talk a lot more about this in the market in bank stuff. Thank you, Murad. Let's just move down to some of the financials. I think we've covered a big picture performance. We can just go to Slide #8 -- 7, yes. So in terms of the balance sheet, as you can see, that the overall domestic deposits were about PKR 1.5 trillion, which are up 21%, which obviously has resulted in expansion in our market share from a historical ballpark 8% to an 8.4% in the first 9 months. And in the third quarter, in fact, it has averaged about 8.6%. So the trend is stable, and it is improving. Our current account growth has been 20%. It's one of the highest we've had in a long time. I think the previous high was in 2015 or 2016. And despite the elements of forward within the economy, our teams have done very well to achieve this. Our current [indiscernible], which, of course, keeps the cost deposit lower is at 42%. This is one of the highest we have in the industry. CASA ratios on the average are touching about 86%. I think, aspirationally, this has to be a little bit better than that, but 86% is also being maintained throughout the year. And cost of deposits is at 3.5% down from 4.8%. In terms of our advances portfolio, period end advances are at PKR 454 billion, which is marginally lower than what it was last year. Our international advances are at $641 million and above the December levels, while the overall international advances book, as part of our [indiscernible] of costs were down by about 8%. In terms of the investment portfolio, I think we're reasonably well diversified with fixed income at PKR 244 billion, yielding 9.1%, very much in the money and above what would have otherwise have been 3 months or 6 months. During the course of the year, we would have, of course, seen how this will -- we will reposition this. And floating rate bonds are yielding at about 7.9%, and it's a huge portfolio of PKR 413 billion. But the key message here is that it's yielding about 55 basis points above the benchmark people rate. And then to [indiscernible], we will, of course, take time to remove the loan book. This is a very healthy [ carry ] that we will continue to enjoy. The pricing will come in, in Q1. Our T-bills portfolio is at PKR 697 billion, yielding 7.5%. And with the options that are coming in, of course, this will get repriced for the next 4 months or so at better yields. As you go to the Slide 8. Okay. Just a scan on the P&L. So the overall NII levels continue to expand. Q-on-Q, we've actually gone up by 2%, and the NIMs for the first 9 months are at 3.8%. Of course, they are lower than last year, essentially because of margin compression and repositioning across the portfolio. Like I mentioned earlier on, NFI has been a key component of the performance this year. Our Banca commissions are up 56%. ATM fees and cash management are all also up at very high numbers. FX income for the first 9 months was PKR 2.6 billion, and Q3 has in fact been a very good quarter for us in terms of our positioning on the FX and the balance sheet of the SUI positions. Capital gains, we have recorded about $3.3 billion this year, essentially with [ away ] proactive positioning within the international portfolio, where we have a huge fixed income sovereign dollar-denominated book where we have taken some gains in what we've also repositioned ourselves to maintain our NII. Dividend income stood at PKR 1.4 billion, up 56%, with better payout from our wholly-owned controlled subsidies. Expenses, by and large, remained well below inflation, up only 7%. And of course, we haven't had many -- any major branch expansion or any major headcount increases this year as we continue to consolidate and rearrange the overall structure to bank to [ our expense ]. Cost-to-income ratio at 44%, a little bit higher than what it was last year. But I think with the increase in interest rate, this was a slight downward to a trajectory that we would like to maintain and enjoy. I think provisions and asset quality focus that has been there for the last 2 to 3 years, we have taken a marginal charge of $6 million within our International Group, substantially lower than what it was earlier. Our coverage is almost 88% and continues to improve and will be strengthened further. Domestic, a good story, as always. We continue to post reversals, well contributed by our SAM team. So we've brought in about PKR 1.4 billion of net reversals. And the overall domestic asset quality is 5.7%, continues to improve. And with the right amount of loan growth in the future, I think they should come down even further. So this summarizes the overall performance by and large. I think quarter-on-quarter, we have maintained our position and the EPS has also moved in line with that. So Murad, thank you for giving me this initial slot. And the call is over to you, and we're happy to take questions from investors and analysts. Thank you.

Thank you, Arif. We'll now open the floor for Q&A.

[Operator Instructions] We have our first question from -- okay. I'll just wait for a minute. While we wait for the questions to come through, Arif and Aameer, if I could ask you about the charge that was taken on the discontinuing operation in third quarter. So you had a press release at the exchange some time a few weeks ago related to the Switzerland business, Swiss business being closed down. Is this charge related to the Switzerland business? And this is the -- is this all of it? Or could there be a little bit more? And what is the status of that offices? Has that been closed down completely the branch over there?

Yes. Good question. Let me take that. So basically, just the charge is to do with the Swiss subsidiary that we have. We're in a wind down mode for the Swiss subsidiary, and an expected closure is the end of the year. So by December, we should have actually move all our assets, liquidate all our assets and sort of closed down all the lease agreements and all the IT agreements that we had. The charge that we have taken is to do with the ongoing operations because under the national standards, we're supposed to recognize the charge in a discontinued operation. So this charge represents all the losses, mark-to-market losses that we expect to incur in some of the bond portfolio, plus the HR costs and closure costs. So this is the best estimate that we have right now and then part of the closure accounting. And we don't expect to have any other costs on top of that. So this is the fully recognized cost to closure. We probably have a handful of about 6, 7 employees continuing into January. And then only for tax purposes to file the tax return it closed down and get the accounts audited. So basically, the initiative is up, and then we'll be out. So that's correct.

Great. We have a question from Irtiza Hassan. He is asking the relief allowed by UE and Qatar Central Bank was due to expire this quarter. Can we expect further provisioning?

Well, yes, I mean there might be small provisioning amount coming on in December. But I would consider more that as a BAU than anything else, the portfolio that was extended under various test schemes of UE, Qatar and Bahrain. I think most of our clients have come out of it okay, at least the ones who are still in our good book. There are 3 or 4 accounts, which we have been monitoring for now nearly 2 years, and we've recently again touched base with them. And we feel that they have managed to survive the pandemic in some shape or form. And we don't think at this stage, there will be a need to classify them. So we will work with those clients, maybe restructure them, give them an opportunity to come out of this because what is happening is in the UE because of the Expo 2020, we see an uptick in the economy. Qatar is also on the uptick because of the preparation for the Football World Cup. Bahrain is a small economy, but their vaccination rates are very high, and that has also given some optimism in terms of the outlook. So all 3 countries at the moment are looking much better than where they were 6 months ago. So to answer the question in short, we don't expect very large provisioning coming up at least in this year. Very small amounts.

Thank you. Next question from the line of Raza Inam. Raza, can you please unmute yourself and ask a question, please?

[Foreign Language]

[Foreign Language] We can hear you. Please continue.

Okay. My first question is regarding your coverage ratio. I do know that you have taken the total coverage ratio to 88%. So can we expect this covenant ratio to guide even further in the upcoming quarter? Or do you think it's sufficient for now?

Okay. So the coverage ratio is actually close to 89%. We do think that this will improve. Unfortunately, I can't tell you whether this will be this quarter or next quarter. But there is -- there are some things at play, which we'll see this 89% improve into the early 90s. But could be this quarter, most likely, but could also be in the next quarter.

Okay. My second question regarding the single credit. [indiscernible] significant amount, 6% of deposits from government and 7% for public sector enterprise. Now it's my understanding that the federal government has started taking out deposits from other bank as well. So do you see any significant impact of this to your bank? And do you see this will also pertain to the provincial deposits and [indiscernible]?

So right now, the DSA started the treasury account. Consolidation of treasury accounts started, but they're starting it slow. We will have initial sort of list of customers that the list of government they gave us, we surrendered some. So that's an ongoing thing, but it's not significant to move the needle in the short term, in single digits that we had to release and move that. And that's basically it. So it's not a significant amount in our thing. But it all depends what names they add on over time. Provincial, they haven't talked about. It's only federal right now.

Okay. My final question is, can you tell the impact of IFRS 9 [ registry ] as for the latest [ issue ]?

Yes. So on IFRS 9, the national [indiscernible] the IFRS 9 question quite a few years back. For domestic, it's still in play, are sort of an impact analysis with [ Chairman ] State Bank. And I mentioned that a couple of times in the past as well. That is not supposed -- it's not expected to be much more than PKR 89 billion market. So it's still in work in process. There's lots of other assumptions we have to go through, the treatment. So basically, it's not going to be significantly move the needle as far the CAR is concerned. We are 22.8% CAR, and we don't think that that's going to have any major impact on our profitability or our account or CAR.

A question on the chat box, what is the net interest spread on domestic and international operations?

So the overall net interest income or the spread on domestic is around 4%. And on international, which is about 2.5%. Of course, the spread on International are bound to be a little bit squeezed, given the interest rate environment in which we operate. But the overall domestic book or the balance sheet has grown by about 20%. And I think with the much more higher rate outlook, which is eminent, our spreads will continue to increase next year, essentially because of all the hard work we've done on current accounts. I think that still continues to pay off very well. So you could expect an improvement in NIMs going forward.

Thank you. There's a question from [ Bilal Amisha ]. You've answered part of this, so I'll repeat the question. How much would be the one-off and recurring impact of IFRS 9 after its implementation? I think you've answered the one-off impact, if there's any visibility that you can provide on what's the recurring impact, if any.

No. I mean, nothing much, actually. There is an ongoing -- in fact, there is always a positive impact on IFRS 9 in the year when it's adopted because we do take a higher charge into your opening equity. And then any movement that happens thereafter, it actually releases back into the P&L. So from that perspective, it's a positive. But obviously, the large part of our book happens to be in government securities where the question is still open from the State Bank's perspective, whether they will want any expected great loss charge on government securities. But that's still something that's been debated, and I think it's not going to resolve as yet. So that could have a swing factor. Other than that, I don't see much, much impact on the banking results.

Question from [ Musa Farhan ]. What is now -- what is the outlook now for GCC Qatar business? And given the exchange rate volatility, can we expect any strengths on the international NPLs?

Yes, the outlook, I think I've already explained. It is positive compared to where we were 6 months ago for all 3 countries. And the specific reasons being the Expo 2020 for UAE, preparation for the World Cup Football in Qatar, and Bahrain is vaccinated and they are slightly -- they're opening up their economy. Other than that, we've got a set of NPLs and provisions in the international book. If the exchange rate kind of moves against the rupee, then yes, there will be a translation. But I mean, the right way to evaluate probably is to look at like-for-like currency, how are our provisions moving in the same currency. And you will see that, going forward, there will not be a huge -- there won't be huge movements.

And I think Imran rightly explained that on the previous 2 questions as well. And our strategy also has to be looked at. So essentially, we have reduced the balance sheet. We're trying to bring in a stable level of ROE at a dollar-based return that we would like to get from international. So for example, we've reduced the cost of deposit by 60 basis points. You may have seen a very good performance in terms of taking capital gains, and we have rebuilt the sovereign investment before that. So the plan for us, given the economic outlook is to bring in a business model that is a little bit more sustainable. And of course, we will make sure that we remain a lot more risk averse, even if there's a positive outlook. And I think this -- for the first 9 months of this year, I think after about 5 years, International is closer to profit. So signs of stability are imminent. And I think some of the strategy that we've been looking at and the restructuring that we did earlier in the year, I think the results of that are opportune.

Question from [ Fahad ]. Fahad, can you please unmute yourself and ask your question.

So I think Italy's heel for the bank for the past few years has been the international book and progress on that. I think it's a big relief to the investors. We also saw that in the share price recently. So domestically, I think now that the interest rates are rising, what's your outlook for 2021 for interest rates? And secondly, your outlook on deposit growth and loan growth in totality? And do you feel that you need to expand your branch network further? Or are you going to stick around with this?

Let me take the first part, and then Imran can talk about the loan growth. As far as interest rate is concerned, we believe that the rate cycle is now turned. And we probably see another 150 basis points sort of rate hikes between now and the end of this fiscal year that we're in. Maybe even slow and steady because the Governor has been talking about accommodative, positive real interest rate. So we do see that, that rate hike happening within that range. As far as deposits is concerned, our focus is on deposit growth, and we've seen 20%, as Arif just mentioned, and that momentum will continue. Obviously, we are also focused on cost of deposits. So we noticed that our expensive deposits are down. And we will try to balance between optimum book that we have. So that will continue. As far as the branches are concerned, we have closed down 25 branches. So we're constantly, what's called, churning our branch network. We won't see a major growth in the number of branches, but the churn will continue to happen, whereas we look at the bottom 5% and then we move them out and replace them with better areas, better staffing, larger footprint, and that will continue. And that's what's driving the results. So our focus is all about branches and deposits. We have flagship branches that we focus on. You look at the transaction shift to bring the operational efficiency with our branches. The whole digital strategy is designed to supplement our branch network. So whatever low-hanging fruits or low transaction -- low-value transactions that actually only bring in traffic at the counters, but not really at any value. We are seeing how we can move into our digital channels. And a little channel, like Arif mentioned, PKR 1 trillion of throughput is going through that. So these are all low-value transactions. So what you see the number, which is very encouraging for us, is the average ticket size of cash deposit, cash withdrawals are increasing at the branch. And the average ticket size, the digital channel is actually dropping. Good that we are actually being able to capture lower value transactions there. So the indicators are very, very encouraging in our own business strategy, along with the brand strategy. And it seems that we are moving all our transactions and the right kind of transactions in different channels. So basically, this is it. Our strategy is to strengthen our branch network. At the same time, strengthen the digital solutions. We've recently signed up with [indiscernible] for revamping a whole digital content. That will take some time to completely transform that. But we are on that journey, and we are quite satisfied with the progress on that.

Right. And just one element left on loan growth and on next year. And what sectors you think will drive this?

Yes. So we are gearing up for next year. A lot of our turf that we approved earlier this year still remains undispersed. We've opened the LCs, and we expect a lot of that will start getting booked, I'd say, maybe later part of this year to about April next year. So that is going to contribute. We are also looking at the commodity side, which we did not participate much of this year. So that will certainly come in. And you know the soft commodity prices are up, so a lot of our clients are asking for incremental working capital requirements. So we are looking at that. So I think next year, you will see -- sorry, also on the SME front, since for the last few months, we have been gearing up teams, et cetera, and new business is being done. It's probably not found its way on the balance sheet as yet. But I think later part of this year and early, you will see the impact of that as well. On the industry front, we are within our strategy and within our policy. We're generally open to almost everything. So I would not give you 2, 3 specific industries, which are go or no go areas for us.

Thank you. A question from Sohail Tai. Domestic FCC benefit is PKR 16.841 billion versus just PKR 4.7 million in June 2021. Is it a misprint reference not 10.3.2 from the annual -- from the report?

Say it again?

So Sohail Tai is mentioning -- is asking that the FSC -- FSV benefit.

FSV benefit, okay.

It's at about PKR 16.8 billion reported versus PKR 4.7 million in June 2021.

I think what we can do is we can look at that note and, Sohail, if there's any specific query. But essentially, let me clarify that there is no major FSV benefit in domestic advances that the bank has taken. This is something that, as a matter of policy, we've been weaning ourselves off FSV benefit in the domestic bank. Within International, we have taken the FSV benefit, but I think Imran also explained that earlier that we will evaluate the reliability of that collateral and will cover it where necessary. So...

On the domestic front, we will have FSV benefit for our SME portfolio, where as a matter of policy, we take either some kind of real estate. So it will be coming from there.

Yes. It's just that it's not material. So I just wanted to give you that background that it's not [indiscernible]. But thank you for bringing it up.

We'll review it and get back to you on that.

Yes.

Question from [indiscernible], should we expect reversals on the overall loans to continue into fourth quarter 2021 and in 2022? I'm guessing he's referring to reverse on the NPL book.

Yes. I think on the reversals, let me just -- on the domestic side, yes, because you see we have a SAM units, which has been entrusted with recoveries on our NPL book of about PKR 22 billion. That's a portfolio. And they are on course to maintain the recovery pipeline within the next -- this quarter and the next ones that come in 2022 as well. Other than that, we also have about PKR 8.5 billion written off consumable, and we recover about 5% of that every year. And obviously, that's a feet on street activating, and that takes a lot of effort. But this is debt that we will continue to pursue, and those recoveries on the domestic side would also be there. On the International, maybe, Imran, if would like to add something on what you see there.

Yes, yes. So what Arif explained about the domestic, we want to replicate into the international as well. I mean, as I was talking earlier, the GCC markets do -- we do see a little bit of uptick in the economic activity, and that might give us an opportunity to recover from our provided portfolio. So next year, we intend to put a serious push into recovery from our international portfolio as that.

Again, a follow-up question from [indiscernible]. It's on the interest rate outlook and how long will it take for repricing if there is a hike in fourth quarter.

So I mentioned about the interest rate outlook generally to say is that maybe about 150 basis points hike from now to the end of this fiscal year. Maybe another 25 to 50 basis points in the next policy cycle -- third policy cycle, basically, MPS policy statement and another later on. So -- but the -- given what the governor has been saying about being accommodative and positive real interest rates, we do see that the interest rates will go up from here onwards and the rate cycle has reversed. And we have to see how the negotiations work out of IMS. It's a bit early to predict interest rates, given so many variable factors in the market. But that's our current view. And we are building our book based on that assumption for the time being.

Question from [indiscernible]. What sort of ADR targets has the bank set keeping in mind the additional taxation?

ADR. So the question is what are the targets in mind?

Yes. The thing is that, look, with the taxation regime that we have, and our ADR is about 36% right now. I think we just have to grow it by 4%, and we could pass the 2.5 -- could save the 2.5% additional tax. So obviously, not at the cost of business. So that's one message I like. So we try our best to see what we can do in terms of expensive deposits, which we don't require. It's -- so we will optimize our balance sheet in both sides. The balance sheets as well. But given the ADR bidding factor in your tax rate, it's going to be something that we'll have to evaluate. And we are. We are focusing on new relationships, new project and can add more. On the deposit side, we are very focused, very clear that not at the cost that we won't be sharing deposits unless we just -- to chase the ADR target. We will build our book for the future, and what has to be paid has to be paid. But advances, Imran, you want to add how are you going to...

I mean, yes. I mean just picking up from what Aameer said, we do have a pipeline and a kind of a target to go towards in the first step, go above 40%. But we are not going to just chase the ADR target. If the business is good, we'll do it regardless. What is going to help us again is term disbursements. We are also looking at real estate financing commodity operations. I mean this is something, which we can quickly do in the short term. And then the next year will be a slightly medium-term story.

Thank you. There's a question from Ameet Doulat. Ameet, can you please unmute yourself and ask your question.

Can you hear me?

Yes, we can.

Yes, please.

I just had 2 questions. Firstly, on the ROE, you mentioned that the ROE was now at 20%. So it's meant domestic ROE, if you can just let me know.

So actually, well, of course, the overall bank supports -- but domestic ROEs for that matter, are obviously are much higher. They're about 28%, right? And that obviously is the ballpark number that I'm giving you because I know that there is a domestic head office effort that goes into international, it's one bank. And international also supports, for example, it's a huge name in the GCC and home remittances. We have a 20% market share. So we...

The answer really, I think, it's very difficult to separate. We don't really separate with the branch network. Our equity in the branches, all spend on the local regulations. And we can fund it. So it's difficult to just carve out your equity and say, well, this return is based on the...

Yes, yes.

That is...

But as -- I think I'm happy to take the question because I think I know what to say. Well, effectively, as international book, as domestic grows well ahead of international, ROE is going to go north of 20% from where it is right now.

Sure. So I think you answered the last part of my question again. Okay. So the target, given the interest rate outlook that you're presenting and what's looking quite obvious right now, is that probably the ROE would be north of 20% for the foreseeable future.

Yes, yes. I mean you can see that this is the year -- this has partially been a year of COVID. And we've hit a profit level, which is a 10-year historical high for a 9-month performance of UBL. So yes, I think ROEs will start looking up as interest rates go up. But of course, we need to keep our deposit story hanging in together. We need to make sure that costs are in control. And of course, we need to do a good job on our NPLS. So we're hanging in there, but we do see that with interest rates going up, of course, ROEs will improve.

Yes. But the international is now moving into a stable business model there. Whatever derisking we wanted to do, we have done. We've closed down operations that are not part of our core business. So now this is a new area that we are entering into for our international business, stability stabilizing, building on the areas that we're good at. And from there, bringing in the diversity of revenue stream that we've been talking about in the past. So this is what the new phase is going to be for us. And obviously, we're going to wait how the economy improves in the GCC countries. And that's all we're going to be focusing on for the time being -- for the next couple of years.

Right. My second question is a follow-up question, and please correct me if I heard it wrong. You said that the IFRS 9 impact would be around PKR 8 billion to PKR 9 billion, and there will be no impact on the adequacy ratio. Is that correct?

Sorry. Yes. I mean this is the first indicative impact in IFRS, we did about a year back. So that's what I'm saying. So it is the first initial amount that we have. Obviously, the final impact will be determined based on certain assumptions that we'll be making with the Central Bank guidance. What was your question?

So my question was that this PKR 8 billion to PKR 9 billion impact, not having any impact on the capital.

No, no, it won't. It won't. See, this is our transitional provision, of course. And the rules will obviously be -- that you'll go into your tier 1, but that is how it' will be applied.

Yes, it will, whatever dilution. But I think the 22.8% GAAP capital ratio. If you will not have a significant, we can convert -- translate that into basis points, maybe 30, 40 basis points.

Ameet, do you have any other questions?

The main question for the IFRS 9 is the treatment of government securities. We have about just under PKR 1 billion of government securities. And whether they -- whether the Central Bank feels that there should be an expanded credit loss on that portfolio, it's still an open question right now.

Yes. It is something. But given the fact that, historically, we haven't made capital on it, and this has been RWA is 0 and the credit losses is also 0. So I think for the market as a whole, that is probably something that will not...

There will not be any...

[indiscernible].

What I'm saying is that that's still the question unanswered. But even if the Central Bank decides and weigh it that way, the second factor, which is your -- there is a probability of default, and then there is a loss given default. So large given default is 0. So that will be fine anyway. So my question is that by my proposal is that it will probably not have any impact whatever the government decides. Same bank decides on how to treat the government securities. But that's still an open question is what I was saying, but it did not have an impact.

Ameet, does that answer your questions? Oh, here we go. I think a question from [ Satish Belani ]. Can you please provide details about provision reversals. Would also like to know about sectors of the customer, if possible.

Sorry, can you repeat the question a bit louder?

Sure. Can you -- question from [ Satish Belani ]. Can you please provide details about provisioning reversals? And would also like to know if you can share the sector of the customer where these provision reversals have come from.

Okay. So...

All sorts of clients, I mean, [indiscernible] to say, I mean, there's a textile client out of Islamabad and then there's a telecom guy out of UAE. So it's fairly broad based. And then we've got somebody who is departing on our credit cards and car loans. Very difficult to give you one specific sector.

Okay. Question from [ Zara Sanchez ]. Sticking to NPLs, which sectors are contributing higher to NPLs?

Well, the NPL story, if you've been attending these calls, has pretty much been dominated by international. And again, when we say international is predominantly UAE and Qatar, Qatar has been mostly infrastructure because they were gearing up for the football when the embargo happened, and most of those companies were impacted. So Qatar is, I would say, largely infrastructure related. On the UAE front, it was fairly broad-based. But if you were to ask me what are the heavy weights, that will be hospitality, that would be service industry and some training.

Okay. All right, question on -- there are a couple of questions around exchange rate and interest rate outlook. I think interest rate, Aameer, you've already discussed about. Any comment that you want to make on the exchange rate outlook?

Exchange rate. So I think everybody's ...

Everybody wants to know what's going on in exchange rate. So -- but thing is that we believe that the exchange rate is really the challenge that we all have to deal with, and I don't think that the pressure on the currency will go away easy. But the good thing is then it all depends when the IMF program is being sent. Historically, I noticed over the last many years that the minute we signed up with the IMF program, the currency will start stabilizing. And the minute that the currency stabilizes, as the exporters come back and the rupees are starting -- in fact, appreciating a while. So this kind of reversal may happen. It all depends how the negotiations go and when they are able to finalize because the minute that it's done, I'm almost certain that the currency will stabilize.

A number of questions around the ADR of 40%. I think you've answered, but if you want to take that again, is that the ADR is below 40%. Do you plan to improve it considering the extra charges imposed? And does that mean that deposit growth could potentially slow? And lastly, linked to this is what should we expect effective tax rate to be if ADRs remain around these levels?

Yes. So we've done that. We've actually in our account. So first, let me address the taxation part. So we have assumed that we will not be -- we are achieving plus 40-plus ADR. And therefore, our tax rate will include an additional 5% on our -- the income and government securities. As a result, the effective tax rate has now become 42% to 49%. So that's what all happened. And we have taken that chart, and we will continue. We took the charge in the June quarter, and we've done that in the September quarter. And if we don't achieve -- if we do achieve, then obviously there'll be a reversal and the tax charge will come down. But so far, we have recognized that and I think that's at 42%. In terms of -- as I mentioned about the deposit growth that we will not sacrifice business for that. So we will continue to build our momentum in deposits, both in current account savings account. And when we look at our breakeven levels and ensure that, that's not impacted. At the same time, advances has covered a couple of times. We're going to look at advanced growth. Obviously, it will be optimal. It has to be accretive in terms of profitability. And it has to make sense for us so that we don't pile up unnecessary risks in our balance sheet.

And I think on the deposit side, you may have seen that we have continued to expand our deposit market share. And I think ADR will obviously come into question, and ADR is not essentially to save the dagger, but essentially will be earning profile of the mine. And that is the true objective of actual -- of the tax in itself actually to push lending within the economy, either that's just crossing over the threshold. So market share deposit expansion will still be a priority next year as well because with the way interest rates are and the fact that we have a huge network and then Islamic is also same, we will continue to grow and deepen our positions. So I think deposit momentum, we will not stop. That is something, which is the bread and butter of the organization. We'd like to keep that going.

Thank you. A couple of questions around the admin costs. So admin cost has increased while fee income has declined this quarter. Can you provide some color on these 2 heads going forward? And what is the target OpEx growth for 2022?

So admin cost is up 7% with last year, and that's driven by -- partly by inflation and partly by the devaluation in the currency because about 30% of our cost does go into IT-related type of expenditures, both on maintenance, AMCs, on procurement. And then therefore, that blended cost is about 7%. So yes, this is kind of -- this quarter growth is what will be sort of -- we can project going forward. The other thing is on our commission line as well. So we had a very good year as a banker in terms of remittance. All that drives. And even deposit growth, 20% requires some incentive we paid out at the branch level and at the RM level. And that also reflect -- gets reflected in the increase in expenses. But it's a very good expense in the sense that it actually helps the top line as well. So these are the areas where we have. On premises, it's not been very high, but -- because the way we -- I mean, the IFRS 16, the ROEs, a lot of rent increases get spread over time over the life of the lease document. You don't see that kind of growth there. But overall, the expenses are going to be in the same level that we've seen before in the previous quarters.

Thank you. A question -- a couple of questions around the fixed income portfolio. Can you please share the yield on fixed income portfolio and if there are any significant maturities over the next 6 months?

Yes. So the fixed income portfolio is yielding north of 9.1%. And obviously, that is a blended yield. So there are some very high yielding assets as well who are 10.5%, 10.6% in that old portfolio. But the duration of the book right now is about 2.5 years, mainly it is on the shorter side. And we have about PKR 75 billion of maturities next year as well. So our plan on the fixed income has been very clear. We generally want to build a ladder on the bond book because you want to make sure that you have about 100 to 150 basis points on an asset class along with your T-bill portfolio to support the NII of the bank. And then, of course, also that sort of hedges the cost of our term deposits, because term deposits are also a part of the overall deposit book. And that maintains market share. It also maintains the overall earnings profile. But you may have noticed, we have not gone into the bond market in a very big way this year, and I think it has made sense to wait it out. And now you can see that there's a great reversal cycle coming. And obviously, we'll need to reposition ourselves at the right moment.

Thank you. Question from [ Abdul Raman Siddiqui ]. Risk-weighted assets have risen by about PKR 500 billion since the year-end, of which 60% were financed by borrowing. Can we expect this trend to continue? Or can we expect borrowing to come down?

No, I think the RWAs have gone up because of exchange rate translation. So this quarter has essentially seen exchange translation on our international book but you may recall that our RWA International used to be like $3 billion, and that has come down to $1 billion right now. But the good thing is that because we've strengthened the card so much in the last 24 months, earlier on, we used to be worried and every exchange rate devaluation has towards impact on the overall CAR of the bank. But with a 10% buffer, I think we're -- that's exactly why we strengthened the CAR because we wanted to make sure we could absorb these kind of shops. So that's the only reason for the increase.

Thank you. The last question we have on the chat window is from Rizvi Farhan. Overall branches continue to come off while Islamic branches are rising. Can you give an outlook on this front?

Yes. Part of our strategy, brand strategy is to optimize the Islamic market share that has gradually evolving. I think this has done a good job of building the Islamic market. And we believe that there are pockets, which are very, very attractive for us, where the Islamic actually built a good footprint. And then so we're converting in the northern areas in Macron. For example, we recently converted 33 branches. Our overall network is now -- 11% of our brand network is on Islamic. And we will look at the -- optimizing our network in that way. We restructured the whole Islamic and mention it in the sense that, obviously, we have to follow the regulation and they are independent. But they also mirror our conventional network. So there isn't any competition between the 2 when Islamic branches operate independently with their own regulation, but they're part of the same northern region target setting. So it does help. It doesn't actually take anything away when we convert branches into Islamic as long as they are in the right area and where the demand for Islamic part is. So this -- the focus will continue. We evaluate the pockets where Islamic appears to be doing better than the conventional, and we will convert those branches to Islamic.

And it is...

And there are -- recently, we also heard that there are certain areas, which are actually no longer Islamic. And then they don't really care, and they prefer to be conventional. So we might want to work them back. I mean that's another thing I heard the other day. So it's always what is called an evolving story or quite dynamic. And therefore, we have to be very clued up to see what areas are changing in the dynamics.

However, I think Aameer is absolutely right that we will keep shifting the branch in the right areas. But the message is that UBL, I mean, is a brand that we would like to establish with the green logo, something that we will invest in going forward as well as an organic concern. And we've also launched the first Islamic digital account, right, which is also sort of bringing digital and Islamic together. So I think there's a lot of potential. You may have noticed that the loan book within international has also gone up, and the vision is to build the Islamic balance sheet, be a lot more aggressive on the investment book as well and come out to our customers with the complete product suite on Islamic. So I think there's a lot more that we can do, and UBL will now get into this business in a bigger way, and you will see in [ China ].

Thank you. Question from [ Mustafa Montesor ]. Any guidance on increasing dividend payouts given strong card ratios?

Well, on the dividend payout, I think we've been very consistent with our dividend policy. We have been paying quarterly dividends for quite a few years. And the only time when we actually skipped was because of the Central Bank regulation last year during COVID. The 2 quarters, we skipped, but we've been caught up so going forward, I think the 3 quarters will be declared PKR 4 dividend. It seems like a good indication of what's going to follow in the future. And our percentage payouts have always been about 60% to 70% in that range, and we will expect to maintain that. There's no change in the payout policy right now.

All right. Question on the capital adequacy. What are your CAR requirements set by the State Bank as UBL is part of D-SIB?

So 12.5% is our total CAR requirement. We are -- we got surplus or excess requirement by 10% or 1,000 basis points. It's very comfortable. So our requirement is 12.5 minimum.

This is 100 basis points for us. It used to be 150. But as we...

UBL, actually [indiscernible] drop the rate. So overall, when you add up all the Tier 1, Tier 2, all the requirement comes down to 12.5%.

Questions from Saqib Hussain. Can you please tell us the current status of Omni banking? Is it growing?

Omni business. So Omni business is, because of the IBFC that was withdrawn by State Bank in COVID, Omni business has had a bit of a setback. But we are now optimizing that network while putting in other transactions and finding new business lines. So it is one of those businesses, which is now undergoing a bit of a review and a bit of a challenge in redefining its business model. So yes, so Omni is an evolving story, but we believe that there are certain opportunities when we go digital, like [indiscernible] recently launched [indiscernible] and PMG acquisition through the Omni network. Any success, we'll be getting some of that. So it's all bridge the new opportunities are evolving through that, and we will be leveraging it further. But right now, it's not like it used to be in our hey days. And all the branches banking networks are under pressure, Telenor being the highest and most of the others are. So that's one area that we need to focus more on.

But the opportunity is still there. With the PKR 7 trillion of cash out there, and a lot of the foreign investors, I think, have always been asking us about the opportunity with Omni. I think that evolution will happen. And we believe that all of that cash is out there, eventually will have to come into the banking system. And the only agent is sort of the first line. You see that goes into the markets to collect that information and what we call the Level 0 account, which are accounts with a smaller limit and with a slightly more relaxed KYC. That's the first point. So I think that's an advantage that UBL has had for the last 10 years. And with COVID, there has been a bit of a change with domestic remote businesses coming down. But there's a lot of opportunity, and we are testing the market. We're giving ATM cards as well to this market segment because we believe, eventually, these are going to be a full-fledged of broad banking customers. But we will share details of how Omni is changing probably in the first quarter of '22.

I have 2 questions on the asset book. One is the average, if you can share the average repricing for the loan book. And if you can share the tenure-wise breakup of cable investment portfolio.

Yes. So loan book, I think about 120 days because, essentially, this is a corporate loan book. And Imran, would you like to add something on the repricing maybe?

Yes. I mean on the domestic front, half of our -- 55% of our book is short term. So that average is about 90 days. And that also is the repricing tenure if the interest rates move up.

Yes.

Yes. And on the T-bills?

So on the T-bills, everything for the portfolio is about PKR 690 billion, most of it is going to reprice within this year. So we got about PKR 470 billion of maturities in the last quarter. And then the remaining will obviously mature by February. So T-bills are obviously T-bills. So they're in 3 months and 6 months tenure, mainly given in the 3-month tenure since there was an anticipation of a little bit of monetary tightening. So that is what it is on T-bills. So all of that, yes. And the question essentially is what it should be is yes. All of this will get redeployed at much higher rates, and you may have seen the auction results over the last 2 days as well. So things are looking up in terms of repricing the entire asset book now. And like I said earlier, this is the benefit of having a 42% current account, and we're 20% current account growth. So that benefit is not going to come to us over and above of what we've achieved in this year.

Okay. Last question we have on -- again, on the TSA. If you can share the mix between federal and provincial deposits.

So on the TSA, I think we have spoken about it before as well. Big picture, not more than 2% or 3% of the total deposit book is going to be impacted when it happens. I don't think that it will have any substantial or material impact on the liquidity of the bank, nor on the earnings profile. So obviously, the government plans are more aggressive, our TSA buildup in terms of consolidation of these balances. We will have to go with that because, obviously, in the larger interest of fund management for the overall checker, that may be the right thing to do. But it's not going to have any material impact on your earnings or on your market share.

Thank you. Saqib Hussain is asking if you can share GCC NPL breakup country-wise.

Well, okay. So GCC NPL, country-wise, essentially about 70% of this is UAE. And UAE is where our coverage levels are also quite strong. And then there is Qatar, and then there is a little bit of NPLs in Bahrain and some in Germany. So essentially, 70% is UAE.

Thank you. We have no more questions at this point in time. [indiscernible], I just like to pass the call back for closing remarks before the end of the call.

Can I just -- Arif, before you start, can I just do a quick debrief of the 2 businesses? It'll just take a minute. Starting off with International. I just want to say that in the International business, we have rightsized our business. We have derisked where it was required, and we have taken some tough calls in the past in taking the right amount of provisioning wherever it was required. And I think that is now paying dividends. We do have some accounts in the portfolio, which we are monitoring closely. We are working with those clients. But we feel that we have a very good handle on those particular clients and also on our portfolio in general in the GCC. Going forward, we are formulating a game plan to start growing that portfolio. It will be a cautious growth. We would not like to go into areas where we have suffered in the past. But nevertheless, there will be some positive momentum in the GCC. On the domestic front, the domestic business has returned a consistent performance, and we expect that to continue. As I mentioned earlier, you will see that we will grow in the domestic business across pretty much all segments, and I mentioned this will be driven by turf. This will be driven by real estate, commodity financing and enhanced requirement of our clients on working capital needs because of the soft commodities. So yes, that's it for me.

Okay. Overall, let me just wrap it up. Thank you, Imran. So on the main cusp of our operations for the next quarter and going would be both on the liability franchise on the branch network and on digital. So those 2 efforts continue, and I think we'll see results coming in from that. So that's our primary focus other than on the advances side. And obviously, building up our treasury as we see the rates moving up. So we will see that positive sign there. And basically just doing more of what we are doing. At the same time, working with our staff, people. We've had a new head of HR now, and I think we're trying to build up a more robust and more stronger teams within the organization, which are in the helm.

Thank you so much. We would like to thank all the participants who joined the call today and for the questions. And special thanks to UBL's management team for making the time for these calls. These are always appreciated by investors and clients. So thank you for that. We would now like to end the call at this point. You may now disconnect. Thank you, everyone.

Okay. Thank you, everybody, for coming to this call.

Thank you.

And we hope to be in touch with you in individually as well, and see you in February with the year-end results. Thank you so much.

Thank you very much.

Thank you. Bye.