Allied Bank: silver bullets backfire

Allied Bank, the countrys fifth largest lender, didn shy away from lazy banking in the quarter ending March 2013. Following the footsteps of its mighty mates, ABL counted on its low cost deposits to jack up its exposure in government securities, while giving private sector lending a wide berth.
Essentially, ABLs private sector lending is proportionally higher than its investments. However, the sluggish growth pattern witnessed by its advances vis-à-vis investments in the first quarter of CY13 drags ABL to the list of easy bankers.
The bank enjoys the lowest infection ratio among its peer group and by undertaking more vigilant lending stance it was able to further cut its non-performing loans. However, on the negative note, restrictive lending rendered ABL largely unsuccessful in sustaining its bottom line which slid by eight percent year-on-year in 1QCY13.
Besides cautious lending approach, declining discount rate also lent a due hand in hampering ABLs top line growth. The skimpy growth mustered by top line faded further by rising mark-up expenses owing to a whopping 27 percent year-on-year growth in deposits. Unfortunately, the deposit growth couldn uplift its low cost deposits (see CASA ratio).
ABLs performance reveals that parking funds in government securities is not the ultimate safe haven from adverse industry backdrop. In fact, it might go awry if other factors turn unfavourable.
For instance, until CY12, ABLs bottom line was garnering considerable support from non mark-up income, particularly dividend income. Nevertheless, the sizeable sale of securities in CY12, has widely limited its dividend income, resulting in a drop in its non mark-up income in 1QCY13 - another blow to ABLs bottom line.
While the expected reversal in monetary cycle might embellish the banks top lines, increased cost on saving deposits tends to steal the charm. How the banks leverage the impending circumstances would be a real feat.

=====================================

ALLIED BANK LIMITED

=====================================

                     1QCY13    1QCY12

=====================================

Infection Ratio        7.5%      8.6%

Coverage Ratio        88.0%     82.8%

Spread Ratio          39.4%     40.6%

Capital Ratio          8.6%      8.7%

IDR                   48.8%     41.8%

ADR                   50.9%     58.1%

CASA                  69.9%     71.1%

ROA                    0.5%      0.6%

ROE                    5.3%      6.7%

-------------------------------------

Source: Company Accounts

=====================================

=========================================================

ALLIED BANK LIMITED (CONSOLIDATED P&L)

=========================================================

(Rs mn)                             chg   1QCY13   1QCY12

=========================================================

Markup Earned                        6%   12,729   11,997

Markup Expenses                      8%    7,720    7,129

Net Markup Income                    3%    5,009    4,868

Provisioning                         9%      (43)    (40)

Net Markup Income after provisions   3%    5,053    4,908

Non Mark-up / Interest Income      -14%    2,588    2,999

Operating Revenues                  -3%    7,640    7,906

Non Mark-up / Interest Expenses      5%    3,649    3,480

Profit Before Taxation             -10%    3,991    4,427

Taxation                           -15%    1,141    1,337

Profit After Taxation               -8%    2,850    3,090

EPS (Rs.)                                   2.74     2.97

---------------------------------------------------------

Source: Company Accounts

=========================================================