Meezan Bank was the first Islamic bank to setup shop in the country, and it has posted steady gains in the last eight years of its operations.
The quarter ending June 30 was in line with historical expectations. The bank has expanded its branch network aggressively in the past two years, with more than 200 banking outlets.
Islamic banks have existed on the fringes of the banking industry for many years, but the global financial crisis really brought them in the lime light in international financial circles.
Risk averse in nature and loathsome of leveraging have been features that attract investors, Muslims and others alike.
In line the recent popularity of Islamic finance, Meezans revenue surged by nearly 30 percent. Though all banking segments progressed, credit managers expended particular effort in the consumer finance areas of auto lease and home financing.
But, unlike conventional banks advance-to-deposit ratio (ADR) at Islamic banks averages around 53 percent, according to SBP. Meezan has failed to seek that balance as its ADR languishes at 41 percent, down from 46 percent nine months earlier.
Detailed accounts have not been made available at the writing of this note, but the 37 percent decline in provisioning, year on year is a healthy sign for the bank. Gross infection ratio for the bank remained flat in the first three months of CY10, so the pressure it still on.
Surprisingly, operating expenses for the largest Islamic bank increased by nearly 40 percent in the second quarter of the calendar year.
Regulatory and documentation requirements in sharia compliant transactions increase administrative expenses, but managers at the bank need to tighten their belts given the persistent inflation and slowing economic growth.
Overall profitability in the first half of 2010 charged ahead more than 40 percent over the same period last year. To sustain its new popularity and ensure its bottom line growth, bank managers at Meezan must check operating expenses and work on improving its weak ADR.
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Meezan Bank Profit and Loss Accounts
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Rs(mn) 2QCY10 2QCY09 % Chg 1HCY10 1HCY09 % Chg
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Return Earned 3,103 2,378 30% 5,995 4,879 23%
Return Expensed (1,577) (1,202) 31% (3,018) (2,332) 29%
Net Return Income 1,527 1,176 30% 2,977 2,546 17%
Provisioning (255) (405) -37% (474) (764) -38%
Net Return after Provision 1,272 771 65% 2,502 1,783 40%
Other Income 505 486 4% 940 691 36%
Operating Expenses (1,175) (841) 40% (2,265) (1,643) 38%
Profit before Taxation 602 416 45% 1,178 832 42%
Profit after Taxation 355 226 57% 719 509 41%
EPS 0.51 0.40 1.03 0.90
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Source: KSE Announcement
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