The blueprint for banks this season – big, mid-sized and small, has been by and large the same. Bank on higher interest rates, limited and well directed asset growth, greater focus on noncore income, double digit growth in administrative expenses, and slightly higher provisioning charges. Askari bank Limited (AKBL) followed the same in 1HCY19 – and the resultant 18 percent pretax year-on-year growth in profits is more than a decent outcome.
Much of the top line growth owes to the massive increase in interest rates during the period, yielding higher yields on both advances and investments. The June end balance sheet numbers are not known yet, but a look at the March end numbers does reveal that the balance sheet expansion had slowed down, especially that of investments, for obvious reasons.
AKBL has historically carried a higher than per ADR in the 60s, and a good chunk of mark-up earned seems to be driven from much higher earning yields. The liability side has remained steady without being exemplary, but the growth has mostly been in the low cost current deposits, keeping the cost of deposits in control.
The non mark-up income continued to provide able support in challenging times such as these, and was evenly spread across all categories. The fee and commission income led the way with double digit growth, followed closely by a sizeable rise in foreign exchange income, as the treasury arm made good use on the opportunities in the forex market. The contribution from gain on sale of securities dwindled a bit, but that was not the chief contributor to AKBL’s noncore income, unlike peers – hence the negative impact on overall noncore impact due to reduction in gain on sale of securities was limited.
Provisioning charges were slightly higher, as compared to reversal in the same period last year. The NPLs, as at March end 2019, were well in control, with an infection ratio of under 8 percent, and very adequately provided for at over 90 percent. Sooner or later, the economic activities will pick up, and the interest rate cycle will start reversing. AKBL is positioned well enough, courtesy its relatively clean loan book and improved CASA, to stay afloat in tough times.