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An investment-led asset portfolio couldn’t shield BAHL’s top line from the downward interest rate cycle. During 3Q CY13, the top line slipped by six percent quarter on quarter. However, the concentration on current deposits guarded Net Interest Margin (NIM) which inched up by three percent quarter on quarter taking spread ratio to 40 percent in 3Q CY13 from 37 percent in the earlier quarter.
What wreaked havoc on the bottom line was a massive jump in BAHL’s provisioning expense over the quarter! Until 2Q CY13 had a clean asset portfolio with an infection ratio of three percent, the lowest among similar-sized banks as of 2Q CY13. While the detailed financial accounts are not available yet to identify the recent situation of bad debts (NPL), something unusual may have happened in the 3Q CY13 which pushed up the provisioning expense by 172 percent quarter on quarter.
Non-mark-up income swelled by 20 percent, compared to the previous quarter on the back of healthy dividend income, growth in income from dealing in foreign currencies and higher fee, commission and brokerage income.
However, rise in non-mark-up income couldn’t provide respite to the bottom line which was battered by higher provisioning expense and higher non-mark-up expense.
A year-on-year comparison also shows a similar picture; the bank’s top line slide owing to lower interest rate was counteracted by a plunge in mark-up expense coming on the back of healthy proportion of low-cost deposits particularly current deposits. Non-mark-up income also recorded significant growth year on year. Yet the bottom line was squeezed by tall provisioning expenses and non-mark-up expense.
BAHL’s keenness towards mustering current accounts with the recent advertising campaign of the Al-Habib Apna individual current account offering free life insurance, pay orders, SMS alerts and no minimum balance requirement, seems a march in the right path and might keep BAHL’s spread healthy. Besides, according to Fortune Securities, BAHL will be one of the biggest beneficiaries of the reversal in interest rate cycle due to its highest earning assets to market capitalization ratio among similar-sized banks.
To keep its bottom line looking pretty, the bank needs to focus on its provisioning expense which has been growing unhindered despite sufficient bad debt coverage.


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Bank Al Habib Limited
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Rs (mn) 3QCY13 QoQ chg 9MCY13 YoY chg
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Markup Earned 8,924 -6% 28,133 -10%
Markup Expenses 5,339 -12% 17,537 -11%
Net Markup Income 3,585 3% 10,596 -9%
Provisioning/(Reveral) 251 172% 505 17%
Net Markup Income
after provisions 3,334 -2% 10,091 -10%
Non Mark-up/Interest Income 1,207 20% 3,017 35%
Operating Revenues 4,541 3% 13,108 -2%
Non Mark-up/Interest Expenses 2,744 11% 7,615 12%
Profit Before Taxation 1,797 -7% 5,493 -17%
Taxation 539 -18% 1,802 -33%
Profit After Taxation 1,257 -2% 3,691 -5%
EPS (Rs) 1.24 -2% 3.65 -5%
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Source: KSE Notice
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