United Bank Limited (UBL) Earnings Call Transcript & Summary

We're about to start now [indiscernible] and participants, thank you for being here.

[indiscernible] and good day, everyone. Welcome to UBL's Corporate Briefing Session and Annual 2022 Results Discussion. As is usual, we have the pleasure of having with us Mr. Shazad Dada, President and CEO, UBL; Mr. Arif Akmal Saifie, CFO; and Ms. Saira Shah, Financial Controller and Head of IR. We'll start today's call with a brief comment from Arif and then opening remarks by the and then go to the presentation. Arif, over to you.

Thank you so much, Murad. And thank you, of course, for flying in here to take this, EFG Hermes, our partners for this call. I'd like to welcome everybody who's in this call today and everybody who's on the call as well. This will be a corporate briefing for the bank's performance for 2022. And of course, some important and interesting things about the future outlook of UBL.  So without much ado, the man that you wanted to meet, I'd like to introduce presidency of UBL, Mr. Shazad Dada.

[Foreign Language] everybody. Thank you, Murad and Arif, EFG Hermes for hosting us, and welcome to UBS. [indiscernible] English remarks because they are global investors on the call, but happy to answer any and all questions that you have at the end. But -- let's get to it. And then we -- like Arif said, we will have a small presentation, and then we can have Q&A. But along [indiscernible], UBL has announced its results. There have been superb results as far as we can see. We have also not only been able to maintain one of the most profitable banks but one of the largest banks in Pakistan. I think building on the 60-year history that UBL has of being a market leader in all the segments that we operate in. We have also been able to deliver an ROE and strong dividend yields across the years, and that has only been augmented this year with the results that we have just and we'll get into it.  We also have one of the largest networks in Pakistan, spread all over Pakistan from Cable to Karachi with around 1,350 branches and also 200 Hispanic windows and 150 Hispanic branches. And I'll touch upon the Hispanic business in a while. Along with that, we continue to maintain the top leadership position in digital banking, something we declared as the necessary must for us, and [indiscernible] with the help of our clients. We have been able to really penetrate the digital business with our customer base with now having over 3.2 million customers with serving on our mobile app, which has been one of the highest in the industry.  We're also blessed with a very experienced management team and a very dedicated workforce that spans with experience both locally and internationally. And I think part of -- in fact, a big part of the results stems from their commitment and their dedication. We also have a very solid presence in regional markets, including UAE, Qatar and Bahrain, plus a subsidiary in the U.K. We've also rationalized some of our international operations, which we cited as one of our key priorities to stabilize the international platform, and we have done that very successfully. We'll talk about that.  Home remittance continues to be a big area for us. We have almost 1/4 of market share, which has been growing today at around $6 billion. Inflows plus we have also built up a nice RDA business under the digital banking umbrella and almost $700 billion of flows have come through the RDA channel, and that's again a very growing and important area. And finally, we have been -- also been able to have presence in other parts of the financial services industries to either our subsidiaries or investments, whether it's in asset management under UBL funds, UBL Insurance or Khushhali Bank in the microfinance space.  Next -- before I jump into our own results, I think these are things you know, you guys have all been attending different investor meetings and with banking sessions that you will be having. I think what's on the screen at the back is talking about some of the risks and opportunities that we see in our core segment, but we remain very, very focused on delivering continuing resilience and deliver a solid year going forward. But the backdrop, there's going to be an interest rate regime, which is clearly showing no signs of retreat, both locally and globally. Only today, you heard that there's a monetary policy that's happening on Thursday. Inflation continues to be a big challenge with the super commodity cycles happening all over the world, and Pakistan is no different. Especially given our large oil imports, which seem to be quite inelastic at this point. Investment strategy, I think it's been predominantly focused on the short term as rate outlook remains uncertain. But I think with the IMF program, with the monetary policies, I think there will be stability and hopefully to turn for the best. I know there's a mix that high interest rates are good for the banks. But in fact, they are not necessarily good for the banks because we would like to see more stable interest rates in levels that are maintainable and serviceable because otherwise, you see in high interest rate markets, NPLs growing, and this is something we are watching very closely. And that's why we have been very focused on building a quality asset book across our complete customer segments, whether it is small, medium enterprises, large local corporates, consumer and consumer products, whether it's auto, home mortgages or personal loans. And I think what we have been able to do is being very careful, and that's reflected in our local NPL numbers, which Saira and Arif will talk about. I think geopolitical situation continues to be there, which has impacted not only the local political scene, but it's also impacted the equity markets, and you can see with that.  And lastly, I think the international economics, luckily, with our presence in the Middle East, as I touched upon before, I think we are beneficiaries of that because those markets with the higher oil prices that I touched upon earlier, are showing a lot of resilience and a lot of promise. So again, I think Q2 was a year of reinvestment in our core businesses. We identified those in 2021, and we build on that optimal structure and we're able to deliver the optimal results that we have been able to deliver. And if you recall, if some of you have seed a lot of common faces here. We here, we talk very clearly, we set our strategy around the key focus areas of key pillars and along that we have been able to execute on that quite well despite some challenges.  I think the top part of the graph are not going to dwell on it. You guys can read it. It's basically showing that we continue to see deposit growth at quite a fast pace. And this is no surprise with inflation rates where they are up 13%, 15% year-on-year growth. Our CAR growth has been around 13%. But when you look at currency in circulation that continues to remain very high and as a percentage of GDP, it's growing, which is a concerning factor, but that's part of the performed economy, a reflection of the growing informal economy, which, frankly, is also one of the reasons for our fiscal imbalances. And I think the government is working on it and we'll continue to assist the government in hoping that this imbalance can be addressed and bring more money into the banking sector because not only will that help avoiding the informal economy and bringing them into the text net, but also having a multiplier effect, as we all know, with the rules of economics.  Advances have grown nicely across the banking sector, 19%. We also had a nice increase of 18%. Inflation, however, continues to be an even that's not going away. It continues to grow up 24.5% to 28%. And if you look at the trends that you're seeing now, they continue to remain high. And I think this is something that is really sort of pushing the interest rates up. As you can see, rates have gone up by almost across the board, across the different tenors to almost 300 basis points, 250 to 300 basis points. And this is the reason why we are sitting with almost 1 year at 20%.  On the backdrop of all of this, I think we were able to show very resilient and very, very strong results. We had our best profit before tax, $68 billion, up 31%. Profit after tax was up 4% because of the higher taxes that were imposed on the entire banking sector. Otherwise, this number would have been even higher than 31%. But despite our high inflationary market, we had a cost income ratio of 38% only compared to 45% in 2021. One of the messages we had given you, we will continue to remain fairly focused on controlling our costs. And this is probably one of the lowest in the industry.  ROE continues to be 18%. But if you look at our fourth quarter ROE that was around 28%. So again, showing a very nice momentum as we get into 2023. Our CAR, we are sitting very comfortably above our minimum benchmark by almost 700 basis points, 720 basis points. And I think that gives us a lot of freedom to do a lot of things in a market which will give a lot of opportunities to us and continue to build our customer base. Earnings per share gain were up 4% because of the higher taxes, otherwise, they would have been up. And on the backdrop of that, the Board was quite supportive in declaring one of the highest dividends in, I think, in the banking sector and for us, definitely, at 84%, which is one of the highest dividend payout. And I think it's been very well received by investor group, and we'll continue to build on that.  With that, let me hand over the mic to Saira. But one thing I'll say there are lots of pluses in this page, which we've talked about. But one thing that we have also done in that something game, I remember speaking to all of you is about our NFI – NII income is obviously dependent on interest rate movements, up or down, and that is obviously subject to how prudently and how effectively our treasurer who's sitting here, [indiscernible] team are able to deploy it and they've done a fantastic job. But at the backs of that, we have been able to build also a very strong NFI income, which is up 47% year-on-year. And I think this really gives me a lot of comfort that as interest rates, which will ultimately hopefully come down, we have a very strong customer base, which is built around trade, around digital banking, around a lot of non interest dependent businesses, services, which will continue to play an important role in the banking of 2024, 2025. So with that, Saira, over to you.

Thank you Shazad. I'll just briefly go over our results. Solid growth across all lines, which helped the bottom line. 47% increase in noninterest income and 44% increase in our NII. NII was supported because of widening NIMs going up 4.9%, up from 3.8% with higher asset yields. There was strong growth across all NFI lines. Fee income growing -- banking fees growing by 33%, our card-related fees going up by 21%. That's on the back of our new-to-bank customers. We add about 600,000 every year. Our home remittances fees up by 20%. We even increased our remittance share to about 25 -- to 25% this year. Our trade and guarantee income lines increasing by 58%. This year was supported by other income. Other income of about $6.8 billion on the winding up of our subsidiary in Switzerland.  As Shazad explained, we have one of the lowest cost income ratios across the industry with 38% cost-to-income ratio despite the high inflationary environment. Despite admin expenses, up 22% year-on-year based on inflation and higher utilities. We still managed to control our cost base while reinvesting in technology and people. Our provisions, our asset quality remains strong. Domestic asset quality is -- was -- came in at 3.3%, even lower than last year at 5%. There was a strong provision reversal of $2.9 billion this year. Our coverage is well -- we have well maintained coverage at around 88%, 89% on both international and domestic books. And we further increased our coverage on our foreign sovereign bond portfolio.  We closed deposits at $1.8 trillion, with average deposits going up by 9% year-on-year at $1.6 trillion. Our average current account was up 13%, thus helping us build a ratio of current to deposit ratio up to 49% this year. This was 47%, and it has further strengthened this year. Our CASA – CASA levels continue to improve, almost touching 90%. We're at 89% this year. And we were able to contain our domestic cost of deposits at 6.4% despite the interest rate hike, which is a great achievement, [Foreign Language]. In advances, advances finished at $922 billion. We were up 43% at period end and 18% up on average domestic advances. Our international portfolio was maintained at $715 million. Our investment portfolio continues to be well diversified with fixed and floating rate instruments.  Our balance sheet is well positioned for further repricing across all on our asset base and timely repositioning within our investments will be -- have strengthened our NII and will continue to do so in the future. Yes, we can just go ahead. Arif, would you like to.

Yes. Saira, thank you and also thank you for that detailed presentation and overview. And like you mentioned, the NII will, of course, improve over time as well as we continue to reprice our floating asset portfolios. Just this slide, of course, I think you're all very familiar with it. I won't dwell too much on it. But of course, over the last 2, 3 years, you can see that the payout levels for UBL have improved. In fact, they are improving from INR 12 per share to INR 22 per share. And I think the beauty of that payout along with the results, of course, is the fact that our CAR continues to strengthen despite the weakening in the dollar, the PKR parity. And of course, because of our international RWA, 0 there is, of course, an impact on the total CAR of the bank, but we've continued to conserve our capital base in terms of our lending that we built up in the domestic bank.  EPS is INR 26. -- price to earnings, of course, is at INR 4. I think this is just objective just looking at this slide is, of course, the opportunity with the UBL stock today that the PE levels are still extremely low and the price to book is at 0.6% to 0.7%. So that obviously is an opportunity not just for the existing investors, but also for future investors of the bank. This, of course, is important not just for earnings guidance for the future, but of course, to build the picture on the opportunity with UBL Bank today as one of the leading banks in Pakistan. I think with that, did you like to add something further?

No, excellent.

Yes. So thank you so much. And Murad. Let's just move to the interesting part of the day, which is the opportunity for by to ask questions, and we're all here for that. Thank you.

Thank you for the presentation. We'll now move to the Q&A session. If you have a question, you can raise your hand and we'll pass the mic around for you to ask a question if you are online. For our online participants, again, you can ask -- put a question in the chat box, and I can repeat that.  Before we take questions from there, if I may ask a couple of questions before we move to the participants. So one key thing that we've seen in this quarter is obviously the balance sheet structure optimization, particularly in the last quarter, a strong increase in loans, some optimization over there. And obviously, with this regulation on ADR, I think there is some talks about potentially some changes in there. But just wanted to get your thoughts on how we should look -- is this more this period end driven? Or how should we look at it going into next year? Is that something that you wish to operate on an ADR of over 50% consistently over the course of this year?

Well, I think essentially Murad, thank you, a very relevant question. So the ADR buildup, of course, was something that was important. And I think even historically, UBL is always lending to entities that have been banking with us for a long time. For us, typically, it's been what has to be a decent spread and what has to be enough NFI opportunity on the table for the bank to consume. I think there were some transactions available where we extended our credit lines during the last quarter. I would imagine the bank to aim for a healthy ADR and a healthy ADR for any bank is obviously going to be dependent on the capital structure and that's its own appetite in the market, right?  So my sense is that we should continue to maintain a healthy ADR in 2023 as well. And irrespective of anything that is coming out in the tax laws, right? Because if you have a sensible ADR across domestic and international, end of the day, your ROEs over time are going to be at a development level. And obviously, the margins will also improve because you don't want to put all your money in treasury build, right?  So that would be my sense of the bank's balance sheet. Apart from that, of course, there was a little bit of an improvement in NIMs because, yes, we have improved our cost of deposits. And yes, there were some very good learnings in terms of improving the balance sheet structure. And going forward, our aim would be that even if it's a high-rate environment, we will tend to preserve the level of interest margins and not get carried away with high-cost deposits. And that is something I'm sure the market would also like to see.

And you talked about the international businesses well. I mean, over the last few years, New York was closed down. Now you have Switzerland in the past, Tanzania was to close down. Just a bit on international strategy now and more particularly on the UAE business now. I mean, the macro environment, given the high oil prices is now getting better versus where it was a few years ago. You've taken a lot of pain over there in the past on the asset quality side. So just wanted to get your thoughts, a, on a bit on the view on the strategy on the international business. And how do you see the recovery -- the macroeconomic recovery in UAE in particular helping you with the profitability there and asset quality?

Thanks, Murad. I mean, as I said in my opening remarks, we see our international presence as a big asset. I think it's a natural -- it's -- if you recall 2 years ago, we looked at our business model and we looked at international and we thought that because of the certain challenges that we face, especially in our loan book, for which we paid dearly by taking some large NPLs, which we are currently working on recovering as much as possible. I think what we realized was we only want to be in markets where we can really be a differentiator where we can really have a unique solutions to our clients and where we can make a difference and make our product or solutions or services sweat the way we think they should so it for the kind of return on equity we want.  And I think what we realized while Switzerland has been a very good business for us. We've been there for a long time, good license to have, but we realized that to scale that business up and to make it give the return on equity, the numbers that we just shared with you, 20% ROE, it would be a challenge, keeping in mind the compliance and the governance requirements that were only going to go up over time and given the credit appetite we had for certain jurisdictions.  So after doing a very detailed review, we were able to make the right decision, and I'm very happy that we made the decision because we were able to deploy that capital more prudently and more effectively and hence, we were able to give the returns we gave. U.S., you know the story there. I'm not going to eliminate Tanzania. But again, most recently, that's the only one. Well, what we see is UAE as the anchor in our regional strategy. I think it's very heartening and very promising that what we are seeing is the quality of clients we have who have -- and COVID was a very good time to see how those clients would stick with us during some very difficult types and really deepened our relationships with them. I think our strategy there continues to be work with the larger groups, work with play on the Pakistan UAE corridor, play on the remittance corridor, be effective to our diaspora, which has really paid dividends and really be able to assist businesses that are from Pakistan doing business in the Middle East with the baying the gateway and vice versa, allowing businesses that are based regional houses hubs of businesses that are looking to Pakistan working with them. So that will continue to be there, but we will -- obviously, there are a lot of learnings that we had from our prior encounters as far as our asset portfolio is concerned. And also, I think on the investment side, within the emerging markets portfolio, some of that is reflected in our provisions number.  So we will, again, be smart about it, take our learnings and build on our capabilities and deploy a lot of our learnings on the digital banking. We are trying to do a lot of work there, which really will make our presence there branch ubiquitous in terms of really being able to deliver those services. And that itself will be a big plus for us. So we are very excited about that. I think Qatar post World Cup, FIFA World Cup is showing a lot of promise and term being a good investment sort of place. So those will continue the U.K. business, as you know, that's a subsidiary business with a joint venture, but that's also shown a big high turnaround. And there again, we have been focused on our strategy of being able to differentiate ourselves for our customer base.

Do we have any questions from the audience?

[indiscernible] this year, you've seen recoveries, and we've had a bit lifting sort of domestic asset quality, not just for UBL for other banks as well. But obviously, I'm sure with interest rates where they are and with the situation where it is, surely, asset quality will -- you'll have your eyeballs on it. And so just wanted to get a sense of what you think is going to happen if this economic downturn is the prolonged one, right, and extends more. So are you seeing stretch…

Look... I think that's the question I asked by CRO all the time. He's unfortunately traveling is in transit. But that's something Imran Sarwar and myself and the finance team and our management team are constantly challenging ourselves. High interest rates would imply it's a natural that there will be stress. But again, it also will depend bank-to-bank how well have they diversified their portfolio. What's been their risk tolerance levels? How are they -- what sectors have they put certain sectors will get impacted a lot more than certain other sectors. And right now, with the limit issue, the LC limited issue, it's not just the high interest rates. It's also the ability to be able to source the raw material to be able to run their business and some factories are running at 50% capacity. And not how long will they run on that.  So let's be I'm cautiously optimistic that with IMF program getting announced and you already are seeing some stability on the exchange rate and the disparity between the official exchange rate and the curve rate and the other rates coming together, the confluence of that. I would hope that -- but I think prudent bankers and risk management professionals. We need to be very careful. Flood was a big shock. But again, there, we were able to withstand and I give credit to my team and able to identify the clients who have the ability and the buffer and the TAM and the ability to withstand some difficult times.  I'm sure there will be clients that will go through a difficult period. But as bankers, we are going to be there to support them. If they are genuinely trying to work through those difficult times. But it may also be a great opportunity for some people to just raise their hand and close shop and start next shop next door. Those are the ones we want to stay away from, and we have tried to stay away from them. And we know in Pakistan or times like this, people take advantage of these situations. And I hope there are not too many, if at all, any in our portfolio.

Right... And the second follow-up question, maybe with respect to international, I think just a retention to what [indiscernible], -- we've seen the impairment come through on some of the international investments and not just you, I think other banks as well. Could you give us a sense if you're behind the worst? Or there are more maybe distressed debt out there that UBL is sort of assessing whether it might want to take impairment on are you done with whatever you like to do?

Murad, I'm on the line whenever you need me.

Yes, just so I'm wrong there. So I'll just add one sentence, and I'll hand it over to him now. Never say never. But Imran will tell you what kind of approach we have taken, which should give you a lot of comfort.

Thank you, Shazad, and sorry for joining a little late. Well, listen, we have done an extensive amount of work on our international portfolio over the last 2 years. And as you can see in our results that we've not had any provisions last year. There are 3 or 4 accounts, which we are tracking very closely. They've been restructured, and so far, they are honoring the restructured terms. And we will continue to monitor them very, very closely. So basically, the learning that Shazad was talking about that we've taken from international, and we have reshaped our strategy for all our markets. And when we talk about international, UAEs our largest market after Pakistan. So that is really what matters. Qatar and Bahrain are relatively smaller.  So what we are -- we -- our target market in UAE is now predominantly GREs, top corporates. And when we go into SME or smaller segments, we will do that on an exceptional basis, but with on-ground security availability. So this is the approach we have taken. Oil prices are on the high, which means these economies get tremendous benefit and we can see the buoyancy in these economies. So on the back of that, we have also restarted lending in UAE and a little bit in Qatar as well to take advantage of what the current situation is.  And in the part question about if there are still something hidden in the portfolio, I can assure you, there is nothing heading from us anymore. Most of the portfolio is performing okay. There are 4 accounts, in particular, between UAE, Qatar and Bahrain that I mentioned that have been restructured, and we are tracking them. So far, they are adhering to the terms and conditions.

Follow-up to... Can you hear me? Okay. [indiscernible] obviously commendable results that we've seen so far. Just wondering on the investment front, but we have some international bonds on the book as well, and there is a considerable amount of [indiscernible] loss carrying on them. What's the strategy on that or view on that at this point in time?

Well, I think for that, of course, it's a mark-to-market loss. And I think if I would just go back in time 12 months ago, there was a $50 million gain on the same portfolio, right? And then whatever happened post February in international markets and in Pakistan, of course, that is reflected in itself in the balance sheet. I think our plan is reasonably clear. Over the next 2 to 3 years, we're going to shift our portfolio with international more towards investment grade. I don't think there will be a very significant drag on the yield because of that as might have been anticipated -- so we should be able to protect our NII over there in terms of the balance sheet. And of course, there will be organic growth in the international balance sheet every year as well. And there will be what I tend to think is a reasonable split between investments and loans, and that should be a consistent ROE over there with that. If -- well, in terms of how do we handle the bond portfolio, of course, we will need to wait out the situation as it is right now. But whatever opportunity we get to reposition ourselves more towards investment grade, we will be taking there.

My question is regarding your deposit growth last year, obviously, we saw that all of these banks checked their high court deposits, and we did increase the lending to meet the ADR target. So with the ADR lower removed, what sort of deposit growth can we see next year in the banking sector in UBL in particular. So would we see the return of the quarter deposit mobilization or you would remain focused on the current account like last year?

Yes. I think historically, if you look at UBL, I think it will be easy for me to just answer that first. We've always had the highest current total deposit ratio north of 40% to 43%. That is going to continue. And in terms of strategy, of course, given the 19% plus interest rate situation, it will be current accounts, right? It is, I think, very obvious irrespective of ADR or no ADR, it will be CASA-led and more of CAR. And along with that, of course, other avenues of building the network will be the plan. But -- if you ask me, what is the core earnings that we will see in '23 and beyond, it will be current account driven.

I would like to... And I would just say, look, tax rate on the side, I think we want to work with customers. We want to be value added to them. And if it makes good economic sense, regardless of the type of deposit, we will be welcoming them. But obviously, we want to optimize our CASA mix. We want to make sure that the deposits are for the right duration. And we are not going to chase deposits just to show a big market share number so that we can come here and say we have expect market share. That's something we have not stated. That's something we have not been in that game, and we will stay away from that because that doesn't really get us anywhere.

The second question, just wanted to get a sense of investment strategy. Obviously, will have been very successful in managing book. It shifted focus to a build and PIB floater. So will you be comfortable in taking in fixed PIB down the line? Or do you think this is the strategy which will remain relevant throughout this year?

It all depends on the economic outlook, the political outlook. This is a very important year. As you know, it's an election year. I think political stability, coupled with economic stability should hopefully help bring and the global economic inflationary cycle. I think if that also takes a breather. I think naturally, you will see rates coming down. So prudence would be catching that wave at the right time, so you are able to get longer duration and maximize on that. But honestly, right now, there's a lot of things in the area in our Galco, -- we're constantly debating this point. And I think the real challenge will be calling it out right. But in terms of [indiscernible], one thing I can tell you, you can never call out the top or the bottom. You guys are all in the investment. [indiscernible] strategy or right calls there at the right time. But right now, clearly, what the number to watch is inflation and how does that tally over the next 6 months, and that regard our strategy.

Do you think that the government will do the restructuring of local debt? And if yes, then on which instrument do you think they will do it?

Dan, good question. I don't know the answer. I hope not only big not because we hold debt and obviously, we have fixed and floaters. But Pakistan is a unique country. Now I'm just giving my personal view. We have a very -- if I can use that word an abusive relationship between banks and the government in terms of the cross borrowing around circa around 57%, 58%. And it will have a very in-depth impact if that happens because that would mean banks would have to take a haircut, haircut would mean that's going to have a domino effect in the industry and the private sector and so forth. So hopefully -- and there are examples in countries that have avoided it and got into the outcome, but it also depends how things go from here. Let's hope the direction changes.

And on the question which I have is what are your expectation of rate hike in the upcoming monitor policy?

Again, I always say this with a smile. If I knew the answer, I would not be sitting in this boring gray room Burgundy chairs. I will be sitting in Hawaii or Maldives. But [indiscernible] after keep seeing or last auction may care high AAT and the timing of that. So I think I won't say it, what you can see it.

Just a couple of questions alluding to what Murad raised earlier and [ Raza ] as well. So firstly, on the balance sheet optimization towards the last quarter, which Murad talked about earlier, -- we all know that this is going to be a difficult year. Rates are going to go up further. We don't know the quantum. So clearly, lending would be challenging other than obviously looking to support existing clients. Wouldn't that mean that in a natural sort of environment, you ADRs in a sort of a normal way should come down, given where rates are? So some comment on that. And I'll just put the second question as well with regard to the point [ Raza ] had raised earlier on the stress in the domestic portfolio. Can you shed some light in terms of the restructuring or anything that you've seen in the last few quarters? Clearly, there are a lot of customers who are facing challenges with the interest rate and as well as also due to the LC limits and stuff like that, and that's been going on for a few months now. So if you could give us some color on that.

I'll let the second question be answered by Imran, our CRO. As far as the first one, look, -- we continue to work with customers who we think are doing the right thing and support them. One thing you have to keep in mind with very high inflationary pressures, the demand for raw material and the cost of raw material is also going up. So naturally, what's happening is the cost is going up and because of that, they need -- the lending needs are going up by the fact of the inflation. You just -- the natural appreciation is quite a volume growth in [ Icera ], price growth [indiscernible]. So I think there will be an element of that, which will be -- and again, what we are going to try to work with our clients who are withstood some difficult times, and we'll be there for them. Plus there is a great opportunity. Honestly, because of these [indiscernible] we have been able clients that are -- especially the multinational clients who never -- and I've worked in multinational banks for 30-plus years. And I can tell you very good relationship. But because of the regional lockups that they have with their global players, they just don't want to do business with a local bank. But now because of certain constraints they have, they are coming to us, and this is giving us a good opportunity to work with clients which we were dreaming to work with, we can't. So this -- every crisis has an opportunity. And again, banks that are able to deliver, navigate through difficult times, assist them by giving them the right limits in the right time. You win trust of some members, I make this comment that on a rainy day, it's very -- for Fund drivers famous [indiscernible] a rainy day, it's very hard to overtake -- on a sunny day, it's very hard to overtake 15 cars on the curve. But on a rainy day, it's very easy, right? So in Charlotte, I think this also will be an opportunity for banks that are will get up, well position have the right product set, have the right delivery. I think COVID, our digital bank in [indiscernible] here was amazing. Unfortunately, it was a catastrophe, and I think we all -- there were a lot of learnings for us. But [indiscernible] become a digital banking customer to both corporate clients and individuals clients. No, no, no, because we have afraid data privacy issues. We are afraid somebody will take advantage. This doesn't work. I want to go to a branch, but when COVID happened, we were able to see a skyrocketing of our digital customer base. So again, this will create opportunities, bring in new clients, but we have to also remain prudent that we don't do reckless lending or not understand the balance sheet and the needs of the end user because demand be cut. Imran to you the second question. If you forgot... I can repeat it.

So before I get into this particular question, a few people have asked about the portfolio growth in the last quarter of last year. So yes, I mean, it does look quite drastic, but I can tell you just one fact that our weighted average credit grade on 30th September to 31st of December, has hardly moved 2 basis points. What that really tells us is that the credit growth we have done, it's been done very sensibly. We have not allowed our portfolio to deteriorate in spite of -- it's a fairly large amount. So I just wanted to leave that thought with you because a few people had asked that question. Now coming on to the portfolio. So listen, we started doing our stress testing and enhanced monitoring, et cetera, about 4, 5, 6 months ago. In short, our portfolio currently is holding steady. We recently concluded another set of stress tests across corporate all the way down to consumers. So that includes SME and agri as well -- so far, other than a little bit of the portfolio. In fact, there is a question in the chat box, asking about the consumer portfolio. So I can tell you here December '21 to December '22, our performing consumer portfolio grew by boot,9%, while our NPL ratio dropped by 40 bps. So our NPL ratio to consumer portfolio is now less than 2%. This is blended across all projects. Having said this, we are not delusional. We do see the macroeconomic dislocation that has happened in Pakistan and fairly drastically in the last 8, 10 months. And we do think that the credit market will add up at some point in time, not just for us, but for the industry. So as a result of that, we have tightened our controls. We have tightened our policies wherever possible. We have relooked at our underwriting standards and minimum acceptance criteria, and we are keeping a close watch on all portfolios. But as I said, we are keeping our fingers crossed because so far, nothing is showing up on UBL side.

We had one question on -- from the online part -- he's been waiting for a while. So let's take that. Suleman, Your line is open if you can unmute yourself and ask your question.

My name is Suleman [ Mana ], a few questions. Did you have any Adani Group exposure? And if you could tell me what was the impact of the sale of the international branch if there was a number on that. The other question which I have is on the M&A side, especially with the situation right now, do you expect any M&A activity in the banking space amongst the big like 8 or 10 banks? And are you expecting any further tax raises from the government of Pakistan on banks?

So I think Imran is on the call. Maybe you could give them an update on the exposure that we may have on Adani.

Well, we did have an exposure on Adani but if we go back about 2, 3 years ago, we had a sizable exposure on Adani, but at the moment, it is nil. So we brought it down to when this thing happened, we were exposed to a done, but with a relatively small amount, and that also was brought down. So we actually had 0 impact from this [indiscernible].

Okay. And I think the second question was around potential M&A activity. I think if you ask me, historically in Parkson there haven't been too many M&As to be honest, and they haven't been very successful as well. So at this point in time, in 2022, the way things are, banks will get a little bit short of capital. But the way the exchange rate is and the way the scenario is, I don't think, logically speaking, we really be thinking about M&A. I think every organization, including UBL and the larger banks should be thinking more in terms of consolidation. Of course, if there is an opportunity that makes a lot of sense, any organization will look at it. But typically, if you ask me, this is more a year of consolidation for all entities in the banking sector. Third question was around potentially higher taxation.

So the other question was also about international sale of international branch and the impact.

I think there was no sale of international branch. There was the winding up of a subsidiary that we had in Switzerland. It was a very profitable subsidiary that's giving us a dividend every year. But I think we explained this a couple of years ago that there is a core noncore diversification that we've done. And based on that, we decided to unwind that, and that was the $6.8 billion gain that you saw in our other income this year.

Okay. And the last question about further taxes...

Again, I would say, if I knew the answer, I would not be sitting here. I would be I think a better person to ask is Mr. Tariq [ Pasha ] and Mr. [ Saga ]. Honestly, don't know, but I hope not because banking sector is already taxed a lot higher than the corporate sector and banking sector pays its use in multiple ways. And with the high inflationary environment, I just hope that where we are, we pause because we, as you know, pay a much higher tax rate, and we have been sort of penalized with Supertex long before Supertex got reintroduced last year. So I hope not, but you honestly don't know the answer.

So can you please share your average resetting period on the floating rate PIBs, along with the every duration of fixed rate?

Well, I think in terms of the floating rate PIBs, we are very much in line with the market, right? So you typically have the portfolio split between 3 and 6 months. A lot of the repricing will come to us in the first quarter. In fact, it will come in the first quarter. Obviously, you'll see that as a pickup in our yields. That's one. In terms of the bond portfolio, we've built a ladder, which goes up consistently over the next 2 to 3 years. And I think the one thought that I'll leave you with, of course, is that some of the PIB that are maturing this year are yielding us about 8.5%. So when we -- when those mature obviously, they will be deployed, even if they're at the shorter end at north of 18% to 19%. So I think in terms of our positioning over the next 12 months NII, it will all be an upside and expansion in NIM.

So there also has been a rumor formation of a banking syndicate to land government. Can you share your thoughts on it?

That will be a rumor...

So I have 2 small questions. First one is regarding IFRS 9 implementation. With this being implemented in 2023, what kind of impact do you see on your balance sheet and on your income statement? And secondly, obviously, regarding the dividend payout, we saw one of the highest payouts this quarter this year, which obviously investors appreciate. And given the fact that your capital as is around 19%, 20%. Can we expect this kind of payout to continue going forward?

Well, I think in terms of the IFRS 9 implementation, of course, 2023 is a year where the entire market will, of course, be required to move to that. You will see in our accounts that we have approximately INR 2.5 billion impact, a transitional provision, initial estimate. Of course, we're going to fine-tune those estimates based on Bison's macroeconomic outlook. -- bill, of course, is IFRS 9 compliant in all of its international entities. So just keep that in mind versus some of the other local banks. So that is one on IFRS 9. And your second question was – well, I think historically, we've been paying 71%. And this year, we've had a great quarter. This last quarter has been phenomenal in terms of tax efficiencies and in terms of our historical gain. We decided to share some of that. But I think historically, we've been reasonably generous on dividends. We haven't been on the bonus share side because I think we understand and we believe that cash dividends matter to the market. That is what drives the investor. That is what drives the share. And I would expect that to continue, unless you would like to add something.

Yes. I think that's fair. We have a good track record, and we intend to continue on that track record in Charlotte with all of your support.

Congratulations on a great set of results. I just wanted to ask if you could share if you have any exposure to Pakistan's -- you bonds and if that has been completely provided for or if we could expect more provisioning on that front?

Yes. We definitely have Pakistan bonds. It's in our statements. We have taken the necessary charges for the IFRS in and we have also taken some more prudent measures. So we think today we are well provided for. keeping in mind the current economic environment and the current outlook. But like I said, I hope there's a ride back, but it could be a write-down. But it all depends on how the situation develops. But I think as of right now, we have taken a very conservative and a prudent view on those parts.

All right. And if you could just share your target OpEx growth for next year?

We'll target OpEx growth, of course. So what we are tracking is the cost-to-income ratio. And we are at 38%. I think the first 2 quarters of 2023 should be an improvement in the cost-to-income ratio as most of the floating rate assets gets repriced. And typically, we will be tracking that 38% to 40% range for a cost-to-income ratio. Of course, OpEx growth, I think, is only logical for the bank to reinvest in network, in our people as well and in our technology initiatives. I don't think it's going to be as high as inflation, but it's going to be just enough to make sure we continue to improve our services and our products and continue to grow. And then you will see that in '23.

All right. Lastly, I just wanted to ask, you've exhibited a lot of loan growth. So if you could highlight what sectors, in particular, is that loan growth coming from, especially in the domestic area.

Yes. I think Imran, would you like to just spend a little bit.

Yes, yes. So it is pretty -- this growth was between international and domestic and pretty widely spread out. So I think if I were to spend out the largest sector, we took exposure that was as a group of institutions. Other than that, there is textile. There is utilities, there is government entities, engineering, all sorts -- so apart from -- I can't give you one industry or one sector where we went very, very long.

But of course, we have one sector limits in terms of what kind of exposure we will take, and we are well [ go ] in that.

[indiscernible] are you on that as well? And what are -- what are the prospects that you're looking at.

Just hold that thought. And I'm including among [indiscernible]. The answer is absolutely yes. But I'll give you more details in that.

We'll take a couple of questions from the chat box here. So in terms of the – honestly asking, what is the ROI for the bank on the CapEx or the digital banking? How profitable are omni mobile app operations?

Okay. I think a very interesting question. So the way it works is that we now, of course, have about INR 2.6 trillion of throughput on our digital app. But in terms of the ROI, I think we've grown our overall transaction base by about 25% in the last 3 years, but the headcount levels in our branches are exactly what they were 5 years ago. I think that answers the question very simply, and the deposit base has been growing at a CAGR of 15%, and that's exactly why today UBL has got one of the highest profits at Parkson.

Another question from the chat box is on the international business and if you've been able to bring in dividends from the international operations?

Well, in terms of the dividends from international operations, the last couple of years have been more in terms of building a model that is sustainable. I think when you're doing that, it is important to conserve capital, right? Of course, from the U.K. and from Switzerland, we've been having dividends coming in to Parkson. But within the GCC, we've been a little bit more conservative in terms of conserving our capital base and rightly soon.

If we had to move towards Islamic banking from 2028, how well placed is UBL?

Quite well, please. And I'll again touch upon that in my concluding.

Last 2 questions. So there are a couple of questions on the PIB book spread. We can address that in the end, a couple of questions here. What is your take on direct lending approach which the government is seeking how effective is this approach? And what are your views on that?

I'll take that. Look, we're open to all sorts of proposals from all sorts of segments. If it makes economic sense, why not? There's nothing wrong with that. It all depends on the terms and conditions, and we will explore those like we would explore any other -- we lend to a lot of government-owned entities. And again, that would not be the first time we would be doing that. How -- what why all those questions are still a bit vague right now. It's not on...

As you said in the presentation that the price is historically trading at a much discount to price to book value factors, which Mr. Saifie will he told in the briefing. So is there any option for the consideration for the share buyback?

Again, as part of our strategic evaluation, we look at everything, whatever we can and cannot do. At this stage, we'll not comment on it, but I can tell you that as prudent managers, we have explored everything what can be done and what's allowed and what's not allowed.

So what current advances growth are you expecting in 2023?

Okay. So historically, current account growth has been north of 13% to 15%. I think in Saira, we should be able to continue with that. Market is, of course, tough. But with our sales efforts, I think we should be able to make it to that, if not better. But you do understand that this is a slightly difficult year when it comes to the economy and it comes to overall expansion. Advances growth, I think it will be difficult throughout a number. I think we would be able to sustain the advances base for a couple of quarters, we will then reposition that. But for us, the idea would be to maintain a healthy ADR during 2023.

And the advances, I would just say the value end-to-end chain -- that's how we are going to be looking at things. So that will also part of a very important purpose under digital banking doing inclusive banking. We want to work with the smaller sectors, but link it with the larger corporates that we work with. And I think Agri's a perfect example of the huge opportunities where you can take a pharma all the way down to our Canara Stores in only. We connect the dots, do it. Technology is there, a lot of FinTech's are working who we're partnering up with, and you can really fit in a lot of products and services of the bank into that. And we will continue to exploit those given our role presence, given our urban center presence, given our technology, given our digital footprint. I think that's how we will do it so that we mitigate some of the concerns that people have in a high interest rate environment, how do we get comfort on the risk side.

I think maybe we could just have one last question, but thank you very much for all your participation today.

Can you shed some light on your investment book mix. And your last annual, it was 49% PIBs. So has that changed at all? Has that changed?

Yes, it has changed indeed. So now it is predominantly floating. So close to 60% is now on floating. And that mix will shift further towards the floating side as we unwind some of the bonds and through maturities and as we build up deposits.

And Arif, if you can with it, if you can direct a number of questions on the split of the book between floating fixed and T-bills and the weighted average yield is the normal question if you can just address that as well.

Well, I think overall, once you look at the financials, which will be out there, you will get the metical split and all of that. But if you actually look at the increase in the NIMs in the third and the fourth quarter, I think that in itself speaks for the floating rate element, which is sharing in the portfolio in itself... Murad?

Okay. Thank you. I think we can move towards concluding the call with remarks… [indiscernible].

But thank you, Murad, and thank you, everybody, for some very insightful and very relevant questions. I can assure you that I'm very pleased with the management team that's really on top of a lot of these issues that we've talked about, a board that's very supportive in helping us achieve our objectives and guiding us all along. We are very clear on our priorities. We have set those out very clearly. We want to be continue to be the most innovative bank, and we want to be the best service bank in the country and make sure that we really take that to our regional presence also.  And I think the way we are approaching this around these 3 key initiatives: one is deposit mobilization and expansion network -- we talked about this because there is -- this is a [indiscernible] model that we have. We really want to become use service as the differentiating factor. We are investing heavily in that with a simple aim of being simpler, better, faster. I think that's something that we have been doing it both at the branches. When customer walks in. We are creating all our branches, the physical branches, the look of it, the feel of it and more importantly, the people aspect of it. And we are also making sure that we have the products, solutions and propositions that can really, really differentiate us in terms of getting these low-cost deposit mobilization.  And we are expanding our network where it makes sense. There are a lot of new residential areas opening up. There are a lot of new especially if you go down the motorways, you see so many new areas that have come up even in Karachi, we see a lot. So we want to be there. We want to make sure that we have our presence there. And ideally, we own those presences rather than renting it because I think the cost of rent is going to go up. So wherever we have and we have the ability because of the healthy cars that we have, we will continue to do that. As we do that, we want to embed digital all across all our products, all our solutions and really both internally and externally. Internally, is also because there are multiple areas where we can really do a lot of cost saves, and we are exploiting that to the fullest. So that's been on our deposit mobilization and network expansion. So you'll see more branches, you'll see more the new look of it, and you'll see more in terms of the service quality.  The second is around people and transformation. I think in any services business. I've said this to you all before, people is our biggest asset, and that is something we'll continue to build on. We'll continue to invest in them, and we'll continue to upskill them as the challenges happen as they see challenges and make sure that we really build in them that sense of commitment and sense of loyalty. We'll continue to build on a diverse and inclusive workforce. Again, a very important agenda for the Board and for my management team and myself, and we'll continue to do that. Technology is something we have been investing heavily in it, and it's paying dividends because we were able to invest when the dollar was also a lot less than what it is today. And as you know, for that, you need a lot of hard currency.  And I think if my CIO was here, he would attest to the fact that we have really done all the heavy investment and the process transformation. We formed the transformation office, a seasoned executive -- senior executive is running that office, and we are going to continue to push the transformation both on technology and processes and on the cultural transformation through that, and that's going to be a big thing. Digital I've already touched upon it a few times, but again, the 24/7 penetration connectivity, again, with the spirit of being simpler, better, faster, any place, anywhere, anytime, approach. And that is something we are going to do. We have a new digital front end that's going to be rolled out, hopefully, end of next year, end of this year, which again will show a marked improvement in our already improved app and the customer journey will become even more enriching [indiscernible] sitting and he can answer those questions.  And with all of that in the backdrop, we want to gain focus on the data-driven organization because we think data is one unique asset that we have, and that is something we want to make sure that through that data knowledge, we can really cross-sell a number of products, whether it's employee banking, whether it's any of our NFI products that we have and really be able to also assist in being a lot more efficient when it comes to trade and many other services business, Bank or otherwise consumer products that we have.  Lastly, I think there were 2 questions on Islamic banking. That is a very important area that, first of all, look, I think as -- as a bank, we have already started on that journey. We have [indiscernible], who runs our Islamic banking business. And clearly, what our strategy has been to continue to build up on that. So we have today 150 branches, 200 windows. We've already applied for another 300-plus branches to go into the window format and then take it to. So our aim is, in the next couple of years have 50-50, if not more. So that will tell you how we plan to get to , to your question about the plans that the government has. We are very supportive of that. We would love to do it. It makes -- it's the right thing to do from a being part of it Islamic Republic of Pakistan, personally and for me and my board and my management team.  Secondly, I think that growth there is a lot faster, as you can see from some of our peers in that in terms of deposit growth, in terms of asset growth. The customer needs are. So we are just following our customers. That's the second reason why we think that, that makes sense. And clearly, I think that our products and services that we can really connect trade is one big area, which I think the bank does well with our remittance business, our corridor business, I think we can really be very well positioned for that. And I think we're investing in our teams. We're investing in our infrastructure. We're investing.  We are the first digital Islamic banking product end-to-end. We are launching everything that we are doing in the bank has an Hispanic element in it, Islamic byproduct in it. In fact, Islamic products have conventional products in it. So we are working with that. And we have a very effective treasury management team that's supporting them able to address some of the asset issues that we have. So I think that will continue to be an area, and we'll increase our footprint and geography. In fact, in the north, we have taken districts and converted them all into Islamic because we think that there is a much more urgent need and demand for Islamic banking in that market, but we're also bringing it into the Pakistan.  So again, as I conclude, all I can say is that we'll continue to invest in our franchise and continue to really in the 2 aspirations to attract the best talent and make it the best place to work in Pakistan with a very important element, which is respect and empathy for internal stakeholders for our external customers. And that, I think, is something that we will really, really hone in on through a lot of training and through a lot of development. And I'm proud to say that there's a lot of that already there. While we do all of this, we want to be sure that we continue to provide the highest standards of compliance and governance, and we can have strong controls because I think in times like this, when you have high inflation, economy that's a bit on the sideway trend. You see a lot of abuse of controls, both at all levels. And I think we have really invested heavily on that from our compliance platform, and we'll do that.  And lastly, I would try to also reemphasize with climate change, zero emission challenges that we have. We are really focused on the ESG standards and practices, both within the bank and outside working with our customers, whether it's providing alternate energy financing to our customers and working with them and living the -- walking the walk and talking the talk. And I think that has really been received very well. And in fact, in this, I also say one thing in the ESG, the S. I also look at not just sustainability but from Saira point of view, I think there's a big area for that. So hopefully, you'll see more of us in those fields. And again, in Charlotte, we'll be meeting again soon with some more positive news. We need your support. We need your commitment. We need your belief, and I don't think we have let you down in the last few years. So hopefully, in Charlotte, let's hope we have many more times to celebrate together. And with no further delay, there's high tea outside. So let's move there and have a time to talk about more of the bank, if you want. My entire team is here. Let me just quickly introduce I touched upon some of them. It's an Rizwan Malik, who runs our Treasury, [ Shazia Syed ], who runs our digital banking and our omni business and our call centers, [ Saliman Purves ], who is our Head of Internal Audit; [indiscernible], who works -- control in works very closely with Arif, who runs Islamic banking. Unfortunately, I think Imran have to fly it at the bay but he's here. And there are several other members of my team.

Thank you, everyone. We'll conclude the call today. Saira?

Thank you so much for attending and for your participation and all your questions. And we'd like to invite you for tea. It's just served just outside. Thank you very much.

Thank you, everyone.