Bank Alfalah: pushing the envelope!

Outshining other mid-tier banks, Bank Alfalah (BAFL) entered its sixteenth year of operations with the largest portfolio of earning assets amongst similar sized banks.
Holding the lead position in consumer finance industry, BAFL continued to nurture its advances which grew by over 16 percent in the first quarter of the ongoing year, compared to the same period of the previous year. Resultantly, its advances-to-deposit ratio (ADR) witnessed some improvement.
But, generous lending brings with it inherent risks of higher defaults. In this banks case, toxic assets currently stand at Rs.23.8 billion. However, fresh loans advanced in 1QCY13 helped the bank keep a check on its infection ratio.
What really disappoints is the slide in BAFLs top line despite significant exposure in private sector advances. Needless to say, the low interest rate scenario dampened the top line growth.
Despite an up tick in low cost deposits (see CASA ratio) mark-up expenses climbed; perhaps due to a hike in the floor rate of saving deposits as the same make-up over 30 percent of BAFLs total deposits.
High mark-up expenses pressured BAFLs gross spread ratio, pushing it below the mid-sized banks average of about 40 percent.
An analysis of BAFLs investments reveals that the bank has contained its exposure in Pakistan Investment Bonds in 1QCY13 to cash-in on interest rate risk amid declining interest rates.
Looking forward, having received an overwhelming response on its 5th Term Finance Certificate (TFC) issue, the bank plans to further enhance its asset base by improving its capital adequacy ratio (CAR).
While BAFL plans to continue investing in consumer financing, SME banking and agro-finance with an aim to tap the high-potential rural areas, keeping its NPLs in check would be the real challenge.

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BAFL - Key ratios

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Indicators           1QCY13      1QCY12

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Infection Ratio       10.2%       10.2%

Coverage Ratio          60%         65%

Spread Ratio            36%         42%

Capital Ratio            5%          5%

IDR                     45%         42%

ADR                     52%         49%

CASA                    69%         65%

ROA                    0.2%        0.3%

ROE                      4%          5%

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Source: Company Accounts

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Bank Alfalah Limited

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Rs (mn)                              Chg    1QCY13    1QCY12

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Markup Earned                        -5%    10,572    11,145

Markup Expenses                       4%     6,748     6,500

Net Markup Income                   -18%     3,824     4,645

Provisioning                        -82%       132       718

Net Markup Income after provision    -6%     3,692     3,927

Non Mark-up / Interest Income        27%     1,864     1,463

Operating Revenues                    3%     5,556     5,390

Non Mark-up / Interest Expenses      13%     4,028     3,566

Profit Before Taxation              -16%     1,527     1,824

Taxation                            -17%       516       622

Profit After Taxation               -16%     1,011     1,202

EPS (Rs.)                                     0.75      0.89

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Source: Company Accounts