ABL - balance sheet grows

Balance sheet growth. Check. Prudence. Check. High CASA. Check. Clean loan book. Check. That is Allied Bank Limited (ABL) for you. The ever-growing bank announced its CY16 financial results last week, reporting a 5 percent year-on-year dip, in after-tax profits. The dip in after-tax profits is understandable, given the challenging operating environment that has persisted over the year.

The topline mark-up income declined, as the interest rates went considerably down during the year. That said, the balance sheet growth was healthy, as decent volumetric growth was seen in earning assets. The asset composition has long been tilted in favour of investments which also mean a checked topline growth. ABLs ADR at the end of CY16 stood at 41 percent further down from 44 percent in 2015.

Investments on the other hand continued to surge and grew by 8 percent over 2015. Much of the 10 percent deposit growth was parked in government securities as has been the case of late. Banks have put it down to lack of genuine credit demand from the private sector. Theoretically, in such a low interest rate scenario, private sector credit should be going up the roof but that has not been the case yet, and ABL was happy to add more PIBs and treasury bills to its investment portfolio.

ABLs strength has been its low cost deposit base, and the CASA ratio keeps improving. Managing a 10 percent deposit growth over 2015, and yet increasing the CASA from 73 percent to 78 percent, is an exemplary effort from the banks liability managers. NPLs have never been ABLs problems, as it boasts of one of the cleanest books in the industry. ABL has one of the lowest infection ratio, with adequate provision over 90 percent.

The noncore income continued to support the bottom-line, with a double digit growth. Bulk of it was driven from increase in fee income and gain on sale of securities. ABL booked gains in excess of Rs2.6 billion on the sale of PIBs during the year.

Credit off-take has started to pick up in the industry and the economic indicators are improving. CY16 was always going to be a tough year for banks. It remains to be seen whether the uptick in economy will translate into higher advances. Not that ABL is in a dire need to do anything differently, just yet.