Having faced a slightly underpay 1QCY19. Bank Alfalah (BAFL) made a strong comeback in the second quarter, posting 14 percent year-on-year increase in pre-tax profits for 1HCY19. The financial results announced yesterday were also accompanied with an interim cash dividend of Rs2 per share. BAFL drew strength from strong top line performance as the interest rates were considerably higher during the period.
The balance sheet numbers are not out yet, but 1QCY19 numbers may help. The asset base has not grown exponentially, and the investments side of the asset mix saw a massive reversal in 1QCY19.
The increasing interest rate environment meant the bank ended up lending more to the financial institutions, instead of going for other avenues. That said, the advances growth in year-on-year terms was still there, albeit, in single digits.
The top line growth is by and large reflective of massive expansion in net interest margins, which was aided by loan and investment re-pricing. The cost of deposit increase was still kept in control relative to the increase in average interest rates. That said, BAFL would do well to improve the deposit mix, as the CASA ratio by the end of 1QCY19, had slid a bit to under 80 percent.
Provisioning charges are back in business for a variety of reasons, as against a sizeable reversal in the corresponding period last year. The NPLs have not increased, but the infection ratio has, as the size of advances receded.
The NPLs continue to be adequately provided for, and the health of loan book does not pose an immediate threat to the bank’s overall soundness.
The dip in noncore income mainly stems from absence of capital gains, which had an impact of more than a billion rupees. That said, the treasury arm did well enough to keep the foreign exchange income coming, as it recorded a healthy increase, besides decent growth in other non mark-up income avenues.
The PIBs bonanza is not likely to be repeated this year as was the case a few years back. The interest rates may well be close to the peak, and should also give a clearer picture as to what direction the industry takes in terms of asset re-profiling. A sudden jump in private sector credit seems highly unlikely, given the slow pace of economic activities. Much ill have to depend on increased operational efficiencies in non-core areas, along with smart strategies deployed on the liability front.
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