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Allied Bank Limited (ABL) posted its yearly financial results for CY22, declaring a final cash dividend of Rs2.5/share – taking the full-year payout to Rs8.5/share. The after tax profits grew 22 percent year-on-year, despite an effective tax rate of 55 percent compared to 39 percent a year ago. Pre-tax profit growth at 64 percent year-on-year is testament to Allied Bank’s continuous volumetric expansion.

The non-markup income growth continued to support the bottomline, with significant year-on-year improvement in card-related fee, branch banking, dividend income, and gain on exchange rate. Cost to income ratio improved significantly from same period last year, as growth in administrative expenses was confined to general inflation trend.

Markup earned soared 82 percent year-on-year, which ABL puts down to positive volumetric growth in average earning assets supported by improving spreads and effective duration management. That said, markup expenses grew at a higher pace, reducing the NIM growth to 46 percent year-on-year, as the variance on deposits driven by higher interest rates stayed unfavorable for most part of the year.

Non markup income continued to grow appreciably – up 30 percent year-on-year. Foreign exchange income more than quadrupled - more than making up for the reduction in gain on securities. The increase is mainly attributed to increased trade volume particularly in POL business. Fee based income was thelargest contributor to non-markup income, through growth in diversified digital revenue streams.

On the asset front, advances grew 30 percent over December 2021 – almost the entire growth coming in the last quarter. The gross advances growth by end of 9MCY22 was confined to a little over 3 percent. The growth is well over the industry growth of 18 percent in the same period. Higher tax incidence on investment securities in case of ADR lower than 50 percent, had also led to many banks on a lending spree towards the end of the year, lessening the focus on deposits.

Loan quality at ABL remained exemplary as the NPLs went down 4 percent, with a healthy coverage ratio in excess of 90 percent and one of the lowest industry infection ratio of 1.5 percent. Investments grew 6 percent over December 2021 – much lower than industry average and a rare occurrence of advances outpacing investment growth.

Pakistan’s macroeconomic indicators do not offer much hope for 2023. The interest rates are expected to inch further up and a wider slowdown in economy will invariably lead to low genuine credit appetite, and a likely increase in NPLs across industry. Not all is lost but 2023 promises to throw more challenges than most years in the recent past.

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