The caring bank

Bank Alfalah treaded prudentially in CY10 and has posted annual profits of Rs 968 million, up 8 percent from CY09. The bottom-line growth in CY10 is a good omen for the sixth-largest commercial bank, marking the end of a declining profit bout, given that the banks bottom-line squeezed in CY09 and CY08.
The Bank didn announce any dividend for CY10.
However, the profits were well below market expectations on account of higher provisions for diminution in value of investments, stemming from impairment charges booked on the investments in Warid Telecom. BAFL recorded around Rs 1.99 billion in provisions for diminution in value of investment in CY10 as against Rs317 million last year.
Had it not been for higher impairment charges, the bank would have recorded a double-digit profit growth given that the improvement in BAFLs net interest income remained impressive in CY10.
Aided by a 10 percent growth in net advances to Rs207 billion, along with a 14 percent growth in the investment portfolio to Rs113 billion, the bank has been able to marginally improve its interest income. The banks ADR remained close to the last years level at around 58.5 percent.
The banks deposit base surged by around 9 percent to Rs354 billion, but the reduction in interest expense suggests that the bank has changed its deposit mix and tilted its portfolio more towards low interest-bearing saving and current accounts.
BAFL had significantly increased its exposure to fixed deposit in CY08, the bank fixed-deposit to total-deposit ratio stood close to around 40 percent in CY09 and CY08 as against 31 percent in CY07.
At the same time, the net provisions against loans and advances declined by a whopping 39 percent to Rs 2.24 billion.
Although the company has not yet made CY10 accounts public, it is expected that BAFLs NPL formation growth would decelerate in CY10.
Meanwhile, the banks non-mark up income eased by 9 percent due to a decline in dividend income and reduced gain on sale of securities.
Amid a backdrop of double-digit inflation, the administrative expense surged by around 15 percent, which is justifiable considering the banks continuous efforts to roll out new branches. The bank opened 65 new branches in CY10 and has expanded the total branch network to 386 branches.
With more branches to open in CY11, and the banks intention to qualify for top 5 banks, deposit growth is expected to remain aggressive in CY11.

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BANK ALFALAH LIMITED

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PL (Rs mn)                             CY10     CY09     chg

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Mark-up earned                       37,530    35,561     6%

Mark-up expenses                    (23,855)  (24,654)   -3%

Net Mark-up Income                   13,675    10,907    25%

Provisioning                         (4,260)   (4,071)    5%

Net Mark-up income after provisions   9,415     6,836    38%

Non Mark-up income                    4,708     5,182    -9%

Operating revenues                   18,383    16,089    14%

Non Mark-up expenses                (12,754)  (11,002)   16%

Profit before taxation                1,369     1,016    35%

Profit after taxation                   968       897     8%

EPS (Rs)                               0.72      0.71     1%

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Source: Company accounts

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