KARACHI - The United Bank Limited (UBL) is likely to post earnings of Rs11.0 billion (EPS of Rs10.9) in 2008 versus earnings of Rs8.4 billion (diluted EPS of Rs8.3) last year, depicting a handsome growth of 32 percent YoY. It is expected that fee income could grow by 16 percent to Rs6.0 billion, while income from foreign currency dealings is expected to jump 80 percent to Rs6.0 billion. It is important to mention here that the board of directors of UBL is scheduled to announce full year 2008 results on March 12 (today). The spike in earnings is mainly led by a sharp rise in both net interest and non-interest income. On the back of higher spreads and strong advances growth UBL net interest income is expected to rise to Rs28.0 billion, up by 16 percent YoY. Moreover, increased levels of trade and foreign exchange activity are expected to raise the bank's non-interest income by 22pc to Rs11.0 billion. In addition to substantial growth in both NII and non-interest income, earnings growth would be supported by fall in provisions for non-performing loans (NPLs). After recognising provisions for NPLs of Rs5.5 billion (Rs3.3 billion were as a direct consequence of FSV), UBL's provisions for NPLs are expected to fall by 13 percent to Rs4.8bn. Along with its full year results, the bank is expected to announce a final cash dividend of Rs1.5/share thus taking the full year dividend to Rs3.0 per share. Moreover, a 10-15 percent bonus issue cannot be ruled out. Farhan Rizvi, Research Analyst at JS Global is of the view that UBL like its contemporaries has also been affected by recent crash in stock market. It has a significant equity investment portfolio classified as Available for Sale (AFS) and accounted for under IAS 39 which has been affected by the stock market crash. With relaxation by SECP on recognition of impairment losses for AFS investment UBL could defer recognition of impairment loss. However recent banking results show that banks have encouragingly being forthcoming in recognising provisions for impairment upfront. According to our calculations, total impairment loss based on Dec 31, 2008 prices would range between Rs3.0-3.5bn. Hence recognition of impairment loss would reduce reported earnings by Rs1.9-2.2 per share to Rs8.7-9.0 per share. Despite the risk of rising NPLs and falling net interest margins going forward, UBL remains our preferred pick in the banking sector giving its attractive multiples and business diversification.