It gives me great pleasure to present to you on behalf of the Board of Directors the 61st Annual Report of the National Bank of Pakistan for the year ended December 31, 2010. In the first half of 2010, the economy was showing signs of improvement with tamed inflation numbers and gradual increase in the demand for consumer loans, however the high cost of fund and apprehension about rise in NPLs still kept banks on guard and therefore growth in investments outpaced the growth in advances. The deposits throughout the year showed increasing trend as the liquidity pressure eased in the market. The private sector credit appetite was still low whereas public sector borrowed heavily to finance the budgetary deficit. In addition other challenges like power shortages, law & order concerns, higher inflation, dampened international economic sentiments with talks of double dip recession were all exerting pressure on the business growth sentiments. In already challenging environment, historic floods in the country intensified the effects on already fragile economy. The floods affected around 20.0 million people, majority of whom were subsistence farmers, and therefore not only there was a financial impact but also it presented a social and humanitarian challenge. There was large scale damage to infrastructure as well as the irrigation system of the country. In wake of these floods the GDP growth target of the country was also revised from initial 4.5% to best estimates of 2.5% to 3.0%. Similarly the inflation targets were also revised from 9.5% to 14.5%. Year 2010 was a milestone year for the bank as NBP became the first financial institution in the country to surpass the One Trillion Rupee’ mark. Total assets of the bank were at Rs.1.035 trillion at the year end, up by 9.6% from year end 2009, an appreciable growth in a challenging economic environment. Pre- tax profit increased by 15% from Rs. 21.3 billion to Rs. 24.4 billion. The increase is owing to higher core revenues and lower provision charge. Net interest income increased by 15% from last year, while fee income was up by 8% on account of higher trade finance and general banking income. After tax profit, however, remained at last year level of Rs.17.6 billion due to prior years tax reversal of Rs.4.1 billion in 2009. Pre- tax return on equity stood at 25.4%, pre-tax return on assets at 2.5% while cost to income ratio is at 0.43. Capital adequacy ratio remained strong at 16.9% with core tier 1 capital ratio at 13.8% in 2010. The top line (operating revenue) increased by 8% from Rs. 56.5 billion in 2009 to Rs. 60.9 billion in 2010. Net interest income increased by 15.3% or Rs. 5.8 billion from the corresponding period last year due to higher balance sheet size and re-profiling of liability side. The interest rates during the year gradually increased whereas increase in money supply eased up the pressure on deposit rates slightly. The bank’s total deposits increased by Rs. 105 billion or 14%. The bank also managed to increase its CASA deposit ratio from 56% last year to 62%. Net advances remained at last year level as advances amounting to Rs. 15.0 billion were converted into TFCs and became part of investment portfolio. Investments registered a growth of 38% or Rs. 84.0 billion as the surplus liquidity was invested in Government treasury instruments.
The core revenue from fee business increased by 8% attributable to enhanced focus on trade business and higher revenue from general banking. Income from dealing in foreign currencies decreased mainly on account of lower gains due to less volatility of Pak Rupee in the year under review. Capital gains are lower by 45% mainly due to recording of Rs.3.9 billion capital gain last year on redemption of NIT Units. However, the bank took advantage of higher share prices and was able to realize capital gains of Rs.2.1 billion in 2010 which is higher by Rs. 1.4 billion from 2009 capital gains excluding NIT redemption. Other income is higher by Rs.1.6 billion due to receipt of Rs.1.9 billion as compensation on delayed refunds this year. Dividend income declined by Rs. 821 million in 2010 mainly due to no dividend on NIT units as most of the units were redeemed in 2009.
Staff cost increased by 17% as a result of annual increments, promotions and head count. Other administrative expenses increased mainly due to inflation, I.T infrastructure up gradation and branches renovation.
Provision charge against advances decreased by Rs. 4.0 billion, from Rs. 11.0 billion in 2009 to Rs.7.0 billion in 2010. The decline in provision charge against advances is due to enhanced focus on recoveries and restructuring. Provision against investments increased by Rs.2.3 billion mainly on account of impairment loss recorded on equity portfolio. The said impairment loss is in respect of listed equity securities and mutual funds held under 'Available-for-sale' category of investments in accordance with the applicable International Accounting Standards.