Askari Bank rides on low provisioning

Aggressive provisioning last year seems to have done the trick for commercial banks this time around. Askari Bank Limited (AKBL) announced its 1HCY12 financial results yesterday, posting a massive 56 percent year-on-year improvement in after-tax profits. This came on the back of significantly lower provision charges on NPLs against last year, as the NPL cycle seems to have peaked back then. There wasn much going for AKBL in terms of asset growth during the period as advances grew by a meagre three percent over December 2011, whereas investments remained virtually stagnant. Resultantly, the NII declined by three percentage points versus the same period last year, as low interest rates coupled with increased rate on PLDS despite led to lower spreads. The small banks spread ratio is significantly lower than those of the large and mid-sized banks and AKBLs gross spread ratio reduced to 27.4 percent from 30.4 percent in the same period last year. NPLs decreased by two percent, however, provisioning soared by five percent, leading to an improved coverage ratio of 75 percent, up from 70 percent in December 2011. In line with the industry trend, the contribution from non-mark-up income provided ample support to the bottom line as the re-composition of investment portfolio led to a 31 percent year-on-year increase in non-mark-up income, offsetting the decline in NII. The Banks non-interest expenses were kept in check, increasing only by seven percent despite an addition of 10 more branches to the network, taking the number of branches to 245. Going forward, one may see the advances growing at a better pace given the lower interest rate scenario, but that may also mean higher provisioning and lower spreads.

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Askari Bank Limited
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(Rs mn)                          1HCY12      1HCY11       chg
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Mark-up Earned                  17,010      15,831         7%
Mark-up Expensed               (12,346)    (11,004)       12%
Net Markup Income                4,664       4,827        -3%
Provisioning                      (739)     (1,219)      -39%
Net Mark-up income               3,925       3,608         9%
 after provisions
Other  income                    2,097       1,601        31%
Operating revenues               6,761       6,428         5%
Other  expenses                 (4,446)     (4,143)        7%
Profit before taxation           1,576       1,066        48%
Profit after taxation            1,099         704        56%
EPS (Rs)                          1.35        0.87
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Source: Company Accounts