BAHL proactive measures yield results

With the lowest infection and the highest coverage ratio among the similar-sized banks, BAHL is touted by the banking analysts as the soundest bank in the mid-tier group.
To recall, in CY13, in order to boost its Net Interest Margin (NIM), BAHL’s deposit growth remained subdued while low-cost deposits (especially current deposits) grew considerably. Besides, the bank significantly grew its advances portfolio and put a lid on the investments which fell by 4 percent year on year in CY13.
While the bold strategies adopted by the bank couldn’t prevent a bottom line slide in CY13 due to liability re-pricing taking place, they have started yielding results now. During 1Q CY14, BAHL’s NIM grew by 15 percent year-on-year culminating into a spread ratio of 42 percent as against 36 percent in the similar period of last year.
If CY13 financial accounts are any guide, BAHL’s infection ratio stood above 2 percent as against the peer group average infection ratio of 16 percent. Besides, the provisioning held by the bank can cover its Non-Performing Loans (NPLs) by around 2 times. Assuming the asset quality to have improved further as is the norm for the past few years, reversals worth Rs89 million booked by the bank in 1Q CY14 makes sense. However, the pace of reversals slightly decelerated in 1Q CY14 perhaps with intent of being able to provide a cushion against any unanticipated new NPL formation given bank’s recent increase of its advance book.
Non-mark-up income grew by a momentous 23 percent year on year mainly on the back of superior dividend income and income from dealing in foreign currencies. According to Optimus Capital, the bank increased its investment in listed securities to the tune of Rs2.5 billion in CY13 as against mere Rs200 million in CY12. Higher dividend income is the outcome of this move.
BAHL grew its branch network to 419 branches as of March 2014 as against 395 branches as of March 2013. This pushed up the mark-up expenses by 22 percent year on year. The positive triggers coming in right from the top couldn’t resist the bottom line which ended up growing by 17 percent year on year.
Going forward, BAHL inclination towards private sector advances, if continued, will be a harbinger of NIM expansion; however, the bank must be wary of the credit risk that might follow.

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Bank Al-Habib Limited ( Unconsolidated P&L )

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Rs (mn)                        1QCY14    1QCY13      chg

Markup Earned                   9,681     9,685       0%

Markup Expenses                 5,602     6,156      -9%

Net Markup Income               4,079     3,528      16%

Provisioning/(Reversal)          (89)     (162)     -45%

Net Markup Income

after provisions                3,990     3,366    18.5%

Non Mark-up/Interest Income       989       801      23%

Operating Revenues              4,978     4,167      19%

Non Mark-up/Interest Expenses   2,941     2,408      22%

Profit Before Taxation          2,037     1,760      16%

Taxation                          683       604      13%

Profit After Taxation           1,354     1,156      17%

(Loss)/earnings per share        1.22      1.04

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