Meezan needs impetus in advances

Being the largest bank within the in-fashion Islamic subsector of the banking industry, Meezan managed to increase its deposit base by a quarter in first nine months of 2009 which is twice the conventional industry deposit growth.
Despite an impressive growth in the deposit base, the bank was not able to capitalize on it by converting the incremental liabilities to lucrative assets. The financing, on net basis, has declined by 6 percent, thus reducing the advance to deposit ratio by 14 percentage points to 42 percent. And to the like of industry, over Rs 7 billion (49%) increase in investments, placed the majority of Rs15 billion incremental deposits to earn some spreads.
Meezan requires to work hard on the conversion of deposits to lucrative financing as its ADR is quite low when compared to that of the overall Islamic banking segments 66 percent (Mar9). This is far lower than the current industry ADR ratio of 70 percent. On the positive side, Islamic banking and Meezan bank in particular, hold a lower ratio of bad advances provision compared to the conventional banks.
Despite the falling ADR, spreads earned by the bank were enough to register a pre-provisioning core income increase of 52 percent during CY09. But the core revenues withered by the mounted toxic debts, as more than doubled provisioning reduced the growth to a mere 9 percent. However, the benefit of forced sale value and a likely fall in bad debts growth during the last quarter (less than half provisioning in last quarter versus previous) is a good omen for the upcoming quarters.
in an effort to increase its branch network by over 15 percent to cross the 200 mark, the bank could not manage to match the cost cutting solutions of the conventional giants. However, by virtue of impairments booked last year, its bottom line boosted by 65 percent in 2009. Barring Rs362 million impairments on AFS securities, the net income growth was restricted to a mere 21 percent.
The bank is comfortably placed within the Islamic banks on meeting the State Banks minimum capital requirements with an adequate Rs6.6 billion (2009 requirement is Rs6 bn) share capital. The rest of the Islamic banks, in the meanwhile are either getting merged or eying an acquirer to survive in such prudent environment. The bank further issued 5 percent bonus shares to enhance its paid up capital to come close to the next year requirement.

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Meezan Bank P&L

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Rs (mn)                  4Q-09   4Q-08   % chg    CY09    CY08   % chg

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Return  earned           2,799   2,215     26%  10,102   6,803     48%

Return  expensed        (1,364)   (940)    45%  (4,970) (3,088)    61%

Net return Income        1,436   1,275     13%   5,132   3,715     38%

Provisioning              (215)   (463)    -54% (1,519)   (717)   112%

Net return income

 after provision         1,221     812     50%   3,613   2,997     21%

Other  income              395     317     24%   1,598     708    126%

Operating revenues       1,830   1,592     15%   6,730   4,423     52%

Other  expenses           (956)   (887)     8%  (3,471) (2,713)    28%

Profit before taxation     659     242    173%   1,740     992     75%

Profit after taxation      371      95    291%   1,025     621     65%

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EPS (Rs)                  0.58    0.18            1.71    1.22

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