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JS Bank Limited (PSX:JSBL), incorporated in 2006, is amongst the fastest growing banks in the country today. It was created following a merger between Jahangir Siddiqui Investment Bank and the commercial banking wing of American Express Bank Pakistan. By 2014, the deposits on JS Bank's balance sheet crossed the Rs100 billion marks.

In under a decade of operations, the bank's existence has spread to 138 cities across Pakistan; it has around 300 branches. As per 2014-end, JSBL had a 2,442 strong workforce.

JS Bank deals in a number of key activities. Retail banking unit offers numerous loans and deposit products plus services including wealth management and trade finance. Corporate banking division offers import/export services, guarantees, short term finance, term finance and cash management services. The bank also has investment banking and institutional banking arms.

Recent performance

Like the rest of the banking sector, the last few years have been sublime for JSBL. Courtesy of still being relatively young, JS Bank has outpaced the top line and bottom line growth of most of the industry participants in the past half decade. Much of that can also be associated with the 'JS' brand name backing this decade-old bank.

In the past five years, JS Bank's earned interest (mark-up/ return) has grown at a compound annual growth rate of 36 percent - from Rs3.3 billion in CY10 to Rs15.3 billion in the recently concluded CY15. Despite steep growth, JSBL makes only a tiny fraction of the overall industry. For reference, the total interest earned by the country's banking sector was Rs982 billion in CY15.

In the past year that saw considerable monetary policy easing - declining discount rates and banking spreads - JSBL produced upbeat results. Earned interest grew 38 percent year-on-year for the bank compared to an industry-wide growth of less than seven percent.

Over the past few years, the growth in interest earned has outpaced that in interest expensed. This has been true for the industry as a whole. For JSBL, the five-year CAGR in interest expensed clocked in at 34 percent - two percentage points lower than the earned interest. In CY15, the bank paid out Rs9.7 billion in interest to customers - 34.2 percent more than a year before. In the same period, the industry expensed out Rs486 billion in interest payouts.

Net mark-up or interest income has rallied phenomenally for JSBL - five fold since CY10 - at a CAGR of 40 percent. In CY15, the metric grew 45 percent year-on-year to Rs5.6 billion. The industry, in comparison, experienced a 20 percent rise in interest income in the period as per SBP's data.

Like other key metrics in the income statement, JS Bank's profitability has been nothing short of impressive over the years. This entails that the non-mark-up side of the income statement like dividend income and administrative expenses have behaved favourably.

In CY15, JSBL's bottom-line nearly doubled year-on-year, to Rs2.03 billion against Rs1.06 billion in CY14. In the same year, the banking sector's after-tax profits increased 22 percent to Rs199 billion. The industry's profit trajectory has been remarkable in recent past.

There's a similar story to tell on the balance sheet items. As per last annual report - CY14, JS Bank had deposits of Rs108 billion, rising steeply from Rs21 billion in CY09, at a CAGR of 39 percent. Advances have grown at a similar pace in the period to Rs57 billion at 2014 end. The investment portfolio has expanded rather rapidly amidst an increased inclination of the banking sector towards government securities. Its investments came in at Rs84 billion as of CY14, rallying at a yearly average of 55 percent since 2009.

Palpably, the investment to deposits ratio has inflated over the years - from 45 percent in CY09 to 78 percent in CY14. The advances to deposits ratio (ADR), on the other hand, have trended a little downwards.

Share price and outlook

JSBL stock was much more volatile compared to the benchmark index last year, but both ended up flattish. The banking industry heavyweights (like HBL, MCB and UBL) and consequently the overall sector finished deep in the red last year. JSBL currently trades at around Rs7 a share - rallying from under-Rs2 at the beginning of 2012. The stock outperformed the market in 2012 and 2014.

Despite declining banking spreads, profitability has been strong for banks in Pakistan. Interest income has gone up steadily and PIB investments have soared rapidly. Such a trend in expected to continue for the banking sector with the sector's bottom-line having more room to grow.

Copyright Business Recorder, 2016


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