Bank Alfalah: the path to prosperity

The largest among the mid-sized commercial banks, Bank Alfalah Limited (BAFL) announced its 9MCY12 financial results yesterday, registering an expected yet impressive year-on-year profit growth of 19.7 percent.
The top line growth was restricted to single figures, as has been the industry phenomenon in the current low interest rate scenario. BAFL managed to increase its asset base by 10 percent over December 2011. The major chunk, as expected was taken by the investments, which increased by nearly 24 percent from December 2011.
Advances on the other hand, increased by seven percent from December 2011, which in the current times is an above average number as banks have lately been shy of lending to the private sector.
BAFLs investment to deposit ratio (IDR) jumped from 42 percent in December 2011 to 49 percent as at September-end 2012, showing the increased exposure of BAFL in government papers, particularly the treasury bills.
BAFLs gross spread ratio continued to remain on the lower side as it clocked in at 40 percent. However, the bank did well enough to arrest any further fall in spreads from previous year levels. The deposit growth of 4.4 percent over December 2011 was a shade under the industry-wide average. Islamic banking being one-fifth of BAFLs total deposits probably played its part in minimising the impact of the requirement of higher returns on fixed deposits.
The provision charges, however, were on the higher side, in stark contrast to the industry phenomenon where banks having made aggressive provisioning in the yesteryears, are now yielding better post provisioning NII.
Provisioning charges were evenly distributed between provision against advances and provision for diminution in value of investments. 3QCY12 resulted in hefty provisioning of Rs590 million against advances.
The NPLs have increased by four percent over December 2011 and the coverage ratio stands at a worrying 68 percent. Should there be more aggressive lending, following the recent round of interest rate revision, there might be an upward pressure on provisioning charges going forward.
BAFL continued to feast on the dividends from the other income segment as brokerage and commission fee and gain in the foreign exchange market helped it achieve a sizeable growth in non mark-up income, ensuring a healthy bottom line growth.

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BANK ALFALAH LIMITED

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(Rs mn)                     9MCY12        9MCY11       chg

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Mark-up Earned             34,798        31,979         9%

Mark-up Expensed          (20,894)      (18,984)       10%

Net Markup Income          13,904        12,996         7%

Provisioning               (1,933)       (1,302)       48%

Net Mark-up income         11,970        11,694         2%

 after provisions

Other  income               4,969         3,940        26%

Operating revenues         18,872        16,936        11%

Other  expenses           (11,805)      (10,367)       14%

Profit before taxation      5,399         5,042         7%

Profit after taxation       3,576         2,987        20%

EPS (Rs)                     2.65          2.22

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