Mid-sized banks going great guns

Bank Alfalah Limited (BAFL) and Faysal Bank Limited (FABL) posted a broadly positive first quarter result yesterday, with net bottom-line up by 29 and 11 percent, year-on-year, respectively, thanks to lower provisioning costs (net) and the financial institutions growing focus towards cost efficiency.
In light of improvement in net interest income and non mark-up income, BAFL, the largest mid-sized bank, saw total operating revenues improve by seven percent, year-on-year, in 1QCY12.
FABLs operating revenues fell by 13 percent, owing to decline in net interest income as the bank managed to keep non mark-up income close to the last years level. In part, this is down to decline in KIBOR, which resulted in tighter margins, in the face of expansion in the asset base.
FABLs asset base increased to Rs301 billion at the end of March 2012, marking a growth of 22 percent relative to the same period last year. At the same time, BAFLs asset base increased by 15 percent to Rs469 billion.
FABLs and BAFLs advance to deposit ratio stood at around 75 percent and 49 percent, respectively, as on March 31.
Increases in mark-up expenses are symptomatic of expansion in the banks deposit bases.
BAFLs gross spread ratio stood around 42 percent in 1QCY11; close to last years level. Whereas FABLs gross spread ratio eased down to 25 percent in 1QCY12, fell by seven percentage points compared to the same period last year.
The banks have witnessed a favourable development in the form of lower provisioning cost against loans and advances, stemming from slower growth in NPLs.
Realizing that cost efficiency is in order, BAFL and FABL managed to clamp down the impact of rising inflationary pressures on the cost of operations in the face of expansion in the branch network.
This can be analysed from the fact that BAFLs non mark-up expenses grew marginally by six percent, year-on-year, in 1QCY12. While capitalizing on operating synergies following the merger, and the efforts taken in the past to bring cost efficiencies, FABLs non mark-up expenses eased down by eight percent, year-on-year, in 1QCY12.
BAFLs operating revenues to expense ratio stayed virtually unchanged around 1.7 in 1QCY12, while FABLs operating revenues to expense ratio stood at around 1.21 in 1QCY12, as opposed to 1.28 same period, last year.
Given that BAFLs and FABLs share price increased by around 55 percent and 59 percent, respectively, since the start of the current fiscal year, the banks managed to outperform KSE-100 index.

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                             Bank Alfalah Ltd.            Faysal Bank Ltd

PL Rs(mn)                1QCY12    1QCY11  Chg     1QCY12    1QCY11   Chg

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Mark-up Earned          11,145    10,694     4%    6,777     6,679     1%

Mark-up Expensed        (6,500)   (6,247)    4%   (5,055)   (4,519)   12%

Net Markup Income        4,645     4,447     4%    1,722     2,161   -20%

Provisioning              (718)     (906)  -21%     (199)     (445)  -55%

Net Mark-up income       3,927     3,541    11%    1,522     1,716   -11%

 after provisions

Other income             1,463     1,247    17%    1,375     1,383    -1%

Operating revenues       6,108     5,694     7%    3,097     3,544   -13%

Other expenses          (3,566)   (3,349)    6%   (2,559)   (2,769)   -8%

Profit before taxation   1,824     1,439    27%      338       330     3%

Profit after taxation    1,202       930    29%      267       241    11%

EPS (Rs)                  0.89      0.69            0.32      0.29

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Source: Company Accounts