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JS Bank was formed after the amalgamation of Jahangir Siddiqui Investment Bank Ltd and the commercial operations of American Express Bank Ltd Pakistan. The bank commenced operations on December 30, 2006 with focused operations in retail and consumer banking, treasury, corporate and commercial banking and investment banking. The bank also holds a primary dealers license of government securities from SBP.

Since 2008 the bank's asset base has increased at an average of 36.2 percent annually with a further 20 percent increase in the first half of CY12, accordingly the bank's deposits have increased at an average of 40.2 percent annually and a further 25 percent in the 1HCY12. As per sources, HSBC Bank has agreed to sell its Pakistani operations to JS Bank Limited. The transaction is subject to regulatory approval and the approval of the stakeholders of both parties (HBME and JSBL). It is expected for JSBL's assets to increase to Rs 124 billion after the acquisition of HSBC which currently stand at Rs 64.5 billion.

FINANCIAL POSITION JS Banks asset pool has increased significantly over the past four years, with a year on year increase of 36.9 percent from 2010 to 2011 and a further 19.7 percent increase in 1HCY12. This considerable improvement is mainly attributed to the increase in investments and advances of the bank with a year on year increase of 65.3 percent and 28.9 percent in 2011 respectively.

With the prevailing uncertain conditions of the private sector, the banking industry has found a safe haven in government securities. Accordingly JS Bank has increased its assets in PIBs and market treasury bills significantly, which are the premier cause of the increase in investments.

In 2011 advances increased by an approximate Rs 4 billion, this was primarily due to an increase in loans, cash credit and running finance which attributed to an approximate increase of Rs 2.5bn amongst other things. The bank's deposits and other accounts have amplified by an impressive Rs 10.5 billion in 2011 a 58 percent year on year increase, with substantial improvement in all accounts (fixed, savings and current).

FINANCIAL PERFORMANCE Even with the squeeze in spreads by the State Bank, in 2011 JS Bank has been successful in entering the green after two consecutive years of losses by posting a profit after tax of Rs 359.5 million. Also in the 1HCY12 the bank posted a profit of Rs 278 million which is a phenomenal 177 percent increase to profits of Rs 100m in 1HCY11.

The profit is primarily attributed to the substantial increase in mark-up/ return/ interest earned which increased by 65.5 percent, year on year in 2011, and a 37 percent improvement in 1HCY12 as compared to 1HCY11. The exemption that government securities provide from risky securities and non-performing assets may be attributed to the improved PAT figures. However the major portion of interest earned is covered by returns from loans and advances to customers which are 47 percent of the total amount. 46 percent of earnings are from available for sale and held for trading securities, these are mostly government securities.

Mark-up/ return/ Interest expensed as a percentage of interest earned has also decreased importantly, with margins coming down to 59.9 percent in 2011 from 68.3 percent in 2010, and staying somewhat levelled at 62.9 percent in 1HCY12.

JSBL PROBABLE ACQUISITION OF HSBC JSBL's acquirement of HSBC has been the rave of the banking industry, JSBL will gain on all fronts that is inclusive of HSBC's strong footprint in the consumer banking segment, JSBL had fallen below the minimum capital requirement of the State Bank in CY11, which had been risen to Rs 9 billion. The acquisition would enhance the tier 1 capital of the bank, present superior IT infrastructure and improve on risk management parameters.

According to a report by Invest Capital Market Ltd, the advances and deposits are expected to be increased by 103 percent and 76 percent respectively. Furthermore, the deposit base of the bank is expected to be jacked up by an estimated 90 percent. The most potent advantage is expected to be the escalation of 105 percent to be witnessed under the tier one capital head.

The move also brings down the leverage of the bank from 8.33x pre-acquisition to 7.79x post-acquisition, providing it with further stability. Moreover, post acquisition bank's infection ratio (relationship between non-performing portfolios versus the total loan portfolio) is expected to come down massively by 500bps to seven percent due to better risk management systems of HSBC.

There are concerns regarding the future of JSBL post acquisition, since HSBC is classified as the premier top tier foreign bank, which enhances its ability to target high net worth individuals as its depositors, and these depositors can very well flee the bank prior to the acquisition.

JSBL vs KSE JS Bank at the KSE has presented investors with a 0.55 percent average daily return since August 2011, and an average daily return of 0.85 percent since January 2, 2012 well above market return of 0.118 percent, rationalised by low correlation figures of 0.237 with the market.

With an average price of Rs 3.8 the stock shows deviations of +/-1.87. The price of the stock increased since August last year by a staggering 202 percent from Rs 1.95 on August 10, 2012 to Rs 5.89 on September 17, 2012.




(As % of markup/ return/ interest earned) 2008 2009 2010 2011 YOY 1HCY11 1HCY12


Net mark-up / return/ Interest income 31.1% 28.5% 31.7% 40.1% 65.5% 39.5% 37.1%

Mark-up/return/ interest expensed 68.9% 71.5% 68.3% 59.9% 14.6% 60.5% 62.9%

net mark-up/ interest income after provisions 30.5% -2.1% 27.5% 43.6% 107.0% 50.9% 34.6%

Total non mark-up/ interest income 24.9% 13.4% 10.1% 17.7% 128.9% 10.1% 20.7%

Profit/ (Loss) After Taxation 2.8% -23.5% -12.3% 8.3% 188.3% 5.1% 10.4%

Earnings/ (loss) per share - basic and diluted 0.11 -0.98 -0.66 0.42 0.12 0.28


Source: Company financial statements





(As % of assets) 2008 2009 2010 2011 YOY 1HCY11 1HCY12

Investment - net 23.8% 29.0% 34.8% 42.0% 65.3% 42.0% 44.7%

Advances - net 44.8% 35.5% 35.5% 33.4% 28.9% 33.4% 30.8%

Total assets - - - - 36.9% - -

Deposits and other accounts 70.7% 64.8% 66.7% 76.9% 57.9% 76.9% 80.3%

Total liabilities 75.6% 82.8% 85.2% 86.1% 38.4% 86.1% 88.0%

Net Assets 24.4% 17.2% 14.8% 13.9% 28.1% 13.9% 12.0%


Source: Company financial statements.


Copyright Business Recorder, 2012

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