Allied Bank Limited (ABL) is reaping good results of its sound strategic asset utilisation, as its 9MCY12 profits soared by an impressive 22.6 percent year-on-year. The stupendous performance came despite a massive 23 percent decline in net interest income as the sliding interest rate scenario squeezed spreads.
The Banks asset size increased by nearly 17 percent from December 2011, and investments continued to be the major recipient of increased asset base. ABLs investment increased by 31 percent year-to-date, as investing in the government papers has been the instrument of choice, of late.
Resultantly, ABLs Investment to Deposit Ratio (IDR) increased to 56 percent as at September 2012, from 49 percent as at December end 2011.
ABL followed the industry-wide trend as its advances fell below investments, registering a meagre 2.8 percent increase from December 2011. The gross spread ratio took a big hit as it nosedived to 39 percent, from 50 percent in the same period last year.
Continuous slide in interest rates coupled with increased minimum return requirement on fixed deposits, explain the falling spreads to a great extent.
A meaningful reduction in provisioning charges for NPLs ably supported the operating income, as the Bank reaped gains of restricted lending of late and aggressive provisioning in the yesteryears. ABLs infection and coverage ratio stand at reasonably good level of 8.7 and 83 percent respectively.
What really made the difference though was a humungous rise in the other income, which stood at 43 percent of operating income, up from 20 percent of operating income in the corresponding period last year.
ABLs smart asset utilisation helped it earn sizeable other income on its investments as the dividend income grew by a stupendous five times year-on-year, whereas capital gains booked also more than doubled.
Going forward, the banking spreads are expected to shrink further and there might be an increase in banks advances given the low interest rate scenario. That said, ABL would not mind focussing more on the other income contribution and continuing on the safe road of investing in government securities. All in all, ABL managers have done a good job despite a sliding top line.
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ALLIED BANK LIMITED
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(Rs mn) 9MCY12 9MCY11 chg
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Mark-up Earned 37,010 37,245 -1%
Mark-up Expensed (22,608) (18,616) 21%
Net Markup Income 14,402 18,629 -23%
Provisioning (768) (1,304) -41%
Net Mark-up income 13,634 17,324 -21%
after provisions
Other income 10,961 4,717 132%
Operating revenues 25,362 23,346 9%
Other expenses (11,665) (10,329) 13%
Profit before taxation 12,930 11,713 10%
Profit after taxation 9,558 7,794 23%
EPS (Rs) 10.10 8.24
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Source: Company Accounts
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