BAFL: slow and steady

Bank Alfalah Limited (BAFL) ended CY13 on a bright note, registering a slight increase in profit over previous year. The challenging operating environment, coupled with low interest rate scenario during much of CY13, kept the top line in check.
With the CY13 balance sheet numbers yet to be known, a cue can be taken from September 2013 numbers, which show the industry-wide trend of flattish advances growth, and sharp uptick in investments.
The sluggish top line growth came at the back of low interest rates and a defensive lending strategy, as most of the banks favoured to park the assets in government papers rather than lending to the private sector. The requirement of increased return on deposits did not help the gross spread ratio either, which went down marginally.
A much-needed respite was offered by a significant declaim in provision charges, which reduced to a third of CY12. Aggressive provisioning in yesteryears and better recovery aided the post-provisioning interest income. BAFL now has a much improved coverage ratio than the previous year and its NPLS, too, had come down as at September end 2013.
The usual contribution of non-core income has gained more significance in the present-day banking scenario, and BAFL did not disappoint on this front. Non-mark-up income registered a healthy surge of 14 percent year on year, although the bank would have ideally liked the administrative expenses to be much lower than they actually were.
Bank Alfalah has plans to lend to the SME sector with a different approach, and it views the ongoing CY14 as a good year for the economy. Deposit-creation is least of the concerns for leading banks. Going forward, it is the asset mix which should tilt back towards advances. And should the sentiments continue to improve, BAFL would not be hesitant to cash in on the opportunity.

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Bank Alfalah Limited (Unconsolidated P&L)

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Rs (mn)                                  CY12        CY13         chg

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Markup Earned                          46,080      43,961         -5%

Markup Expensed                        27,500      27,066         -2%

Net Markup Income                      18,580      16,895         -9%

Provisioning/(Reversal)                 3,559       1,054        -70%

Net Markup Income after provisions     15,021      15,841          5%

Non Mark-up/Interest Income             7,281       8,279         14%

Operating Revenues                     22,303      24,120          8%

Non Mark-up/Interest Expenses          15,519      17,313         12%

Profit Before Taxation                  6,783       6,807          0%

Taxation                                2,227       2,131         -4%

Profit After Taxation                   4,556       4,676          3%

EPS (Rs.)                                3.38        3.47

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