Other income saves the day for ABL

Don be fooled by looking at the 2012 annual accounts of the Allied Bank Limited (ABL). No, it is not an investment bank, it still remains a commercial bank, and a big one. ABL announced its financial results for CY12 last week, registering an impressive 16 percent year-on-growth in profits.
As has been the case with banks, particularly the bigger ones, a big chunk of asset growth was attributable to a surge in investments, particularly in the government papers. Investments grew nearly 37 percent during the year, against a modest growth in advances of 11 percent for the same period. ABLs ADR as a result, fell further to 53 percent, from 61 percent at the end of CY11. This is however, not as low as some of the other banks, where investments have overtaken as advances in the asset composition.
The net mark-up income slid by a massive 27 percent year-on-year; primarily on account of substantially lower interest rates during the year. Deposits on the other hand, grew by an impressive 29 percent over the year, well above the industry average growth rate. That also played apart shrinking the gross spread ratio from 48.5 percent last year, to 37 percent for CY12, as the requirement of increased return on deposits played its part.
A massive decline in provision charges, arrested the fall as aggressive provision in yesteryears and restricted lending, led to lower provisioning charges. The NPLs have largely remained flat at Rs20.6 billion. ABL has the bad loans well covered with a high coverage ratio of 86 percent.
The game changer, however, was a step rise in the operating income, which almost doubled from the previous year. ABL booked gains on its investments in listed companies share as the gain on sale of securities more than doubled during the year. Dividend income formed the major chunk of other operating income, tripling to over Rs8 billion for the period.
ABL increased its exposure in high dividend yielding stocks, such as Hubco and top fertilizer companies, hence, massive dividends.
Going forward, a change in strategy towards more aggressive lending appears unlikely as the interest rates continue to be on the lower side and the factors believed to have contributed towards lower lending are still pretty much intact. Moreover, ABL would not mind parking the deposits into investments, as this is what has kept the boat afloat even in such distressed times.

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ALLIED BANK LIMITED

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(Rs mn)                                 CY12        CY11         chg

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Mark-up Earned                       49,512      51,829          -4%

Mark-up Expensed                    (31,181)    (26,696)         17%

Net Markup Income                    18,331      25,133         -27%

Provisioning                           (651)     (3,009)        -78%

Net Mark-up income after provision   17,680      22,124         -20%

Other  income                        14,245       7,264          96%

Operating revenues                   32,576      32,397           1%

Other  expenses                     (15,779)    (14,130)         12%

Profit before taxation               16,146      15,258           6%

Profit after taxation                11,882      10,256          16%

EPS (Rs)                              12.56       10.84

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