UBL’s next act: how Pakistan’s banking giant is poised for sustainable growth?

United Bank Limited (UBL) stands at a pivotal moment in its growth story, with its recent financial performance and strategic positioning signaling both the successful conclusion of a major transformation and the onset of a promising new phase. According to a comprehensive research report by Optimus Capital Management, UBL is not only capitalizing on favorable market dynamics but is also setting the stage for sustained outperformance in the coming years.

A PKR 200 billion windfall: riding the yield curve

UBL’s investment strategy has yielded a significant surplus, thanks to a sharp compression in 10-year PIB floater spreads, from an average of 135 basis points in late 2024 and early 2025 to around 85–90 basis points in the secondary market. This has resulted in a 2.4% rally in PIB floater bond prices, translating into a surplus gain of approximately PKR 130 billion. When combined with existing surpluses and the positive impact of recent rate cuts, UBL’s total surplus for the second quarter of 2025 is estimated to reach PKR 200 billion.

Net interest income: sustained momentum

The report projects UBL’s annual net interest income (NII) to surge to PKR 246 billion in 2025, representing a 42% increase over 2024. With continued deposit growth and a robust investment surplus, quarterly NII could sustainably exceed PKR 75 billion, potentially pushing annualized NII beyond PKR 300 billion in the near to medium term.

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Optimizing funding: the next frontier

With balance sheet leverage near its upper limit and a PKR 600 billion annual cost of Open Market Operations (OMO), UBL is incentivized to replace expensive OMO borrowing with deposits. The research models aggressive deposit growth, 49% year-on-year for 2025 and 29% for 2026, before normalizing to 12% growth thereafter. This funding optimization is expected to further boost NII and drive future profitability.

Diversifying income and enhancing returns

UBL is also aggressively expanding its non-interest income streams. The acquisition of Silkbank is expected to bolster the bottom line, while the normalization of yields and spreads is likely to shift the focus from asset expansion to funding cost optimization. This transition is anticipated to free up resources for higher dividends, with the report forecasting a return on equity (ROE) of 41% in 2025, normalizing to 23% in the terminal year. Consequently, UBL’s fair value has been revised upward to PKR 560 per share, compared to the current price of PKR 515 per share.

Financial highlights (2024–2027E)

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Source: Company Accounts, Optimus Research

Strategic positioning and outlook

UBL’s transition from T-bills to semi-annual 10-year PIB floaters, combined with its sensitivity to interest rate movements, positions it to benefit from ongoing market normalization. The focus on optimizing funding costs, expanding non-interest income, and leveraging recent acquisitions signals a shift toward sustainable, shareholder-friendly growth. With a robust capital base, strong earnings momentum, and a clear strategic direction, UBL is well-placed to deliver value in its “third act.”

According to Optimus Capital Management:

We believe UBL’s second act is nearing a successful maturity. With yields and spreads now normalizing, further asset expansion will take a back seat and is expected to shift focus to funding cost optimization, creating room for growth in dividends.

Source: Optimus Capital Management

⚠️ This post reflects the author’s personal opinion and is for informational purposes only. It does not constitute financial advice. Investing involves risk and should be done independently. Read full disclaimer →