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While it may be the toughest quarter since peak Covid for consumers at large especially in the wake of record headline inflation –big banks have seemingly held it pretty well in 1QCY23. Allied Bank Limited (ABL) posted its first quarterly financial results for CY23, with a pre-tax profit growth of 68 percent year-on-year, stemming largely from robust topline growth.

The topline growth came at the back of positive variance in both average earning assets and interest rates. ABL remains heavily invested in government securities which continue to constitute the bulk of asset base at over Rs1.1 trillion, the effective duration management of which contributed significantly to topline growth alongside improved banking spreads.

Markup expense more than doubled year-on-year on account of unfavorable policy rate variance and increase in average deposit base. Deposits registered a meager growth of 0.5 percent over December 2022, but ABL managed to further improve the deposit mix. Current account deposits increased 12 percent now constituting a healthy 45 percent of the total deposits. ABL’s CASA ratio stood at 81 percent, slightly lower than peer banks but moving in the right direction.

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. The growth primarily stems from foreign exchange income which more than quadrupled year-on-year to Rs3.2 billion. High inflation, rupee depreciation, branch expansion and continuous investment in technology kept pressure on administrative expenses. Higher provisioning expenses dragged down the profits a bit, although the cost to income ratio improved significantly from the same period a year ago.

First quarter may well prove to be the easiest for most banks as signs of slowdown in the economy are getting more visible every passing day and record inflation is going to challenge even the soundest of financial institutions, such as the ABL. Advances growth has remained muted across the industry and loan quality may well be challenged in 2023. ABL’s infection ratio is very low at 1.7 percent, adequately provided for with a coverage ratio of 98 percent. That said higher incidence of provisioning charges may be the order of the day for the remaining quarters of the year.

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