On March 31, 2008, a Consortium comprising of IFC, Bank Muscat, Nomura International and Sinthos Capital led by senior bankers Shaukat Tarin and Sadeq Sayeed acquired a majority stake in Saudi Pak bank for around $213 million (Rs 29.3 per share). The bank changed its name to Silk Bank Limited in June 2008. Silk Bank mainly focuses on SME and Consumer financing which are largely neglected by the bigger banks.
FINANCIAL PERFORMANCE, CY13 As of December CY13, Advances-to-Deposit Ratio (ADR) of Silk bank stands at 81 percent with Investment-to-Deposit Ratio (IDR) of just 21 percent. This shows Silk's focus towards core banking activities. The graph further reiterates Silk's indisputable focus towards core banking as in none of the years at least since CY08, the Investment-to-Deposit Ratio (IDR) has been recorded in excess of Advances-to-Deposit Ratio (ADR).
However, the bank shifted its focus towards investments during the first three quarters of CY13. The 3Q CY13 financial statements showed that investments had grown by 26 percent year on year with a skimpy 5 percent year-on-year growth in advances until September 2013. However, the shift was temporary as it built up its advances with a 7 percent quarter-on-quarter growth and shunned away 2 percent of its investments in the 4Q CY13.
Although, the bank returned to its forte of lending to the private sector in the 4Q CY13, low discount rate coupled with focus on investments in most of the year couldn't sustain Silk's top line, which fell by 11 percent year on year in CY13.
Deposits grew by just One percent year on year in CY13. However, meagre deposit growth proved to be a boon for the spreads. During CY13, Net Interest Margins (NIM) of Silk grew by 14 percent year on year, taking the spread ratio to 28 percent in CY13 from 22 percent in CY12.
Although Non-Performing Loans (NPLs) fell by 9 percent year on year in CY13, inadequate provisioning in yesteryears is what that might have triggered the bank to book provisions during CY13 to improve its loan coverage. During CY13, Silk booked provisions worth Rs 633 million as opposed to reversals of Rs 580million in CY12.
The tremendous growth in provisioning expense turned out to be a major blow to the bottom line. Non-mark-up income grew staggeringly in CY13, mainly on the back of gains on sale of securities. Eventually, the bottom line ended up posting a loss of Rs 1.15 billion in CY13, much higher than the net loss of Rs 344 million in CY12.
FINANCIAL PERFORMANCE, CY12 CY12 was tough year for Silk bank as the bank posted a loss after taxation of Rs 344 million as against the profit of Rs 695 million in CY11.
However, an analysis of CY11 shows that during the year, bulk of the bank's profitability came on the back of recovery/reversal of provisions of around Rs 2.60 billion. However, the corresponding figure in C12 was Rs 580 million, a variance of approx. Rs 2.0 billion, plotting a major hit to the bottom line. The massive reversals in CY11 were due to interim instructions issued by SBP on classification/provisioning requirement of rescheduling/restructuring of loans and advances that are overdue by less than one year at the time of rescheduling/restructuring.
During CY12, bank's earning assets fell by 9 percent year on year with the decline mainly coming on the heels of lesser investments made during the year. Lethargy on the earning assets front coupled with low interest rate wreaked havoc on the top line which could barely muster a 2 percent year-on-year growth.
During the year, bank's deposits grew by 8 percent year on year but the main growth driver was low-cost deposits. Resultantly, CASA ratio jumped from 48 percent in CY11 to 50 percent in CY12, hence curbing the mark-up expenses and keeping the spread ratio in check.
The non-mark-up income also grew incredibly during the period. In CY12, the Bank invested in high-growth platforms including credit cards, Islamic Banking and other consumer products that led to an increase in the administrative expenses. During the year, the bank made strategic investments in new businesses and effectively launched a Credit Card and Islamic Banking business.
The Business also created new avenues for growth including bancassurance, remittances and alternate delivery channel business. The bank came forward as a major player in the growing remittances business, and received remittances of over Rs 5.5 billion in CY12. Silk plans on further expansion through partnerships with more exchange companies. In addition, the bank's first Takaful products, the Silk Secure Takaful and the Silk Education Takaful, and an exclusive retirement plan, the Silk Retirement Plan, offering a guaranteed pension underwritten by major Insurance Companies, were launched during the year.
FUTURE OUTLOOK While the asset quality is improving, low coverage ratio could trigger further provisioning expenses in the coming periods too. Besides, as the bank is exploring more and more growth areas, non-mark-up expenses might also grow. However, soon the bank would start realising returns of this expense in terms of healthy non-mark-up income. Increased focus on CASA and tilt towards private-sector advances is also a good sign and would keep the spreads healthy.
However, owing to the improvement in the macroeconomic fundamentals which signals a status quo to rate-cut in the upcoming monetary policies, the bank might also increase its exposure in government securities to make capital gains. The bank adopted the similar strategy in the first three quarters of CY13 too.
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SILK BANK LIMITED
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Rs (mn) CY 11 CY 12 CY 13
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Markup Earned 8,386 8,584 7,622
Markup Expenses 6,515 6,681 5,463
Net Markup income 1,871 1,902 2,160
Provisioning/(Reversal) (2,630) (580) 633
Net Markup Income after provisions 4,501 2,483 1,526
Non Mark-up! Interest Income 847 1,065 1,325
Operating Revenues 5,347 7 2,851
Non Mark-up I Interest Expenses 3,988 4,077 4,379
Profit Before Taxation 1,359 (529) 1,528)
Taxation 664 (185) (372)
Profit After Taxation 695 (344) 1,157)
EPS (Rs) 0.260 (0.13) (0.43)
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Source: Company Accounts
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