BAHL: as smooth as it gets

In times of squeezing spreads, to have a 24 percent year-on-year growth in NIM is indeed commendable. Bank Al-Habib Limited (KSE: BAHL), one of the soundest mid-tier banks, reported its 1H CY14 financial results yesterday, showing sizeable profit growth, mainly on account of a smart asset and liability mix strategy.
Like all its peers, BAHL’s asset mix is tilted towards investments and with PIBs in fashion, BAHL is most certain to have had its fair share in the second quarter. From the look of things, it appears the ADR may have slid further, as the top line growth could well be entirely investment-driven. There is no stopping the bank to go lend aggressively, but hardly any need is felt, especially when deposit rationalisation is doing the trick.
BAHL proudly has the lowest infection ratio and in return, the highest coverage ratio amongst peers, which speaks volumes of its asset quality. Sufficient support was lent by the banks’ favourite son, i.e. the non-mark-up income, as dividend income and currency-related earnings escalated during the period.
The rapidly increasing administrative expense seems the only blot on an otherwise clean sheet, but the positives will be seen later. BAHL has been steadily expanding its branch and sub-branch networks which would soon start translating into top line.
The banking industry’s latest spreads are at a 9-year low, but the margins are still decent enough. There is still some way to go before the panic button is pressed. Should a good lending opportunity arise, BAHL may be the first one to pounce on, given its astonishingly low NPLs, although there appears little need for it, if the profits remain the core objective.

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Bank Al-Habib Limited  ( Unconsolidated P&L)

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Rs (mn)                   1HCY14     1HCY13      chg

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Markup Earned             20,598     19,209       7%

Markup Expensed           11,921     12,198      -2%

Net Markup Income          8,677      7,011      24%

Provisioning/(Reversal)      121        254     -52%

Net Markup Income

after provisions           8,556      6,757      27%

Non Mark-up/

Interest Income            2,049      1,810      13%

Operating Revenues        10,605      8,567      24%

Non Mark-up/

Interest Expenses          6,095      4,871      25%

Profit Before Taxation     4,510      3,696      22%

Taxation                   1,570      1,263      24%

Profit After Taxation      2,940      2,433      21%

EPS (Rs)                    2.65       2.19

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