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Flash Note: United Bank (UBL): 3Q2018 Conference Call Notes

• The decline in United Bank Limited’s (UBL) latest quarterly earnings was primarily due to hefty provision charge of Rs3.1bn (Rs2.4bn provision for advances and Rs600mn provision for diminution in value of investments). UBL announced 3Q2018 earnings of Rs2.9/share, down 42% YoY.
• Majority of provision on NPLs is from the international book (~Rs2bn) where provision has increased to 76%. Even within the international book, majority of NPLs are from UAE where the provision is at 79%, while incorporating collateral, the provision is around 85-90%. The management intends to take international coverage to ~80%. The provision for diminution in investments is due to poor performance of equity market. 
• UBL also booked pension charge of Rs342mn this quarter. Going forward, management expects pension charge of ~500mn in 4Q2018. UBL also clarified that these pension charges are just estimates and the actual charge for the 2018 will be dependant on actuarial estimates at the end of the year.
• NII of the bank has been flat but the management expects NII to increase as NIMs expand in 4Q2018 and more so in 1Q/2Q2019 where asset portfolio will be fully re-priced. Current yield on advances is at 7%, which should go up to 7.75-7.80% in 4Q2018. Moreover, yield on remaining investments portfolio is around 8%.
• CAR has improved to 17.35% (15.45% in Dec 2017) due to reclassification of investments as well as issuance of ADT-I capital. The management stated that dividend was curtailed to ensure strong CAR. 
• Non-funded income (NFI) has grown by 9%YoY. Home remittances grew by 42%, increasing market share to 30% from 25% in 3Q2017. Similarly, Banca revenues and debit card  commissions grew by 45% and 33%, respectively. 
• On deposits, target is to maintain market share while increasing Current Account (CA) deposits in the mix. CA ratio has improved to 48% and target is to increase it to 50%.
• Advances growth will slow down in coming years compared to this year due to economic concerns. ADR target at around 51-55%. While IDR is expected to increase as interest rates rise and government’s borrowing requirement creates opportunity.