bank-alfalah-grphThe largest amongst the mid-sized commercial banks, Bank Alfalah Limited (BAFL), announced its CY12 half-yearly financial results on Thursday, registering an expected, yet impressive, 22 percent year-on-year growth in profitability. The bottom line growth was primarily driven by the industry-wide phenomenon of a sharp decline in NPLs provisioning. The bulk of provisioning charges were made against the diminution in investment value, whereas, the provision against advances formed nearly one-third of the total provisioning expense, which declined by a massive 41 percent year-on-year. BAFLs top-line grew by a meagre six percent year-on-year, well below the industry average, as the Banks asset growth was kept in check at 5.7 percent over December 2011. Both the advances and investments grew by nine percent over December 2011, nearly in line with the industry average. BAFLs asset composition is still in favour of advances, which is no more the case amongst the larger banks, as investments in government papers has become the major bread earner for the majority of banks. The deposit growth was a major disappointment as it stood at 5.3 percent over December 2011, significantly less than the industry average of 12 percent deposit growth during the same period. BAFL will have to step up in terms of catching up with the industry average of growth in deposits. The Bank still plans to add more branches to its network during 2012. The gross spread ratio at 40 percent for the period is lower by more than one percentage point recorded in the same period last year. It is also significantly lower than the peers who enjoy a gross spread ratio well over 50 percent. Falling spreads is an industry-wide phenomenon, as the minimum rate on deposits has now been increased to six percent, whereas the interest rates have receded of late. BAFLs ADR and IDR stood at 51 percent and 43 percent respectively, in sharp contrast to the industry ratios, which are the opposite of BAFLs, with high investment and low advances on their books. Non-mark-up income provided much needed support to the bottom line as commission; brokerage and foreign currency dealing income soared considerably to fatten the non-mark-up income. Going forward, the banking spreads are expected to squeeze further as the impact of the recent 150 bps cut in interest rate would be felt in 2HCY12. It seems highly unlikely that the banks would alter their strategy of venturing more aggressively into advances, despite the low interest rate scenario, as the energy crisis continues to be the major hurdle. However, eying short-term asset backed advances could well be the way forward, should the interest rates continue to be on the lower side.

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BANK ALFALAH LIMITED
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(Rs mn)                             1HCY12     1HCY11    chg
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Mark-up Earned                      22,743     21,377     6%
Mark-up Expensed                   (13,624)   (12,540)    9%
Net Markup Income                    9,119      8,837     3%
Provisioning                          (980)    (1,664)  -41%
Net Mark-up income after provisions  8,140      7,173    13%
Non mark-up income                   3,079      2,749    12%
Operating revenues                  12,199     11,585     5%
Other  expenses                     (7,640)    (6,847)   12%
Profit before taxation               3,579      3,074    16%
Profit after taxation                2,327      1,908    22%
EPS (Rs)                              1.72      8.17
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Source: Company Accounts

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