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Allied Bank Limited (ABL) announced its 9MCY19 financial results last week, accompanied with an interim dividend of Rs2 per share, in addition to Rs4/share already paid. The increase in total income eventually proved enough to help the bank post a slight increase in pretax profit growth, year-on-year, despite otherwise challenging conditions.

The asset growth mostly revolved around investments, which jumped by a massive Rs169 billion or 25 percent over December 2018. The trend has been visible for some time, and ABL seems to have adopted a rather cautious approach to lending. Some of it could also be attributed to lack of genuine credit appetite in the market, given the high interest rates, and the economic slowdown. But the interest rates did provide an opportunity for the banks to tide on, and ABL was not hesitant in accepting the invitation.

Allied Bank Limited 
Rs (mn) 9MCY19 9MCY18 chg
Markup Earned 86,985 53,213 63%
Markup Expensed 58,204 29,592 97%
Net Markup Income 28,780 23,621 22%
Non Mark-up / Interest Income 7,820 8,742 -11%
Total income 36,601 32,363 13%
Non Mark-up / Interest Expenses 20,402 17,269 18%
Provisioning/(Reversal) (356) (1,316) -73%
Profit Before Taxation 16,555 16,410 1%
Taxation 7,150 6,442 11%
Profit After Taxation 9,405 9,968 -6%
EPS (Rs) 8.21 8.70
Source: PSX notice

The asset mix of the industry has undergone a visible change lately, and ABL is no exception to the rule, as the reliance on massive investments as bulk of assets, has now gradually been shifted. The advances slightly went down over December 2018 to Rs432 billion. The topline soared by 63 percent year-on-year, on the back of higher interest rates and expanded size of the investment portfolio.

Deposit growth was in check at 3.6 percent over December 2018, as the bank crossed the trillion rupee deposit mark earlier in the year. The real story has been the direction and quality of deposit growth, rather than the absoluter increase. The growth in non-remunerative current accounts has been steadier, improving the CASA and reducing the cost of deposits, which is imperative in times of squeezed spreads.

The non markup income slid in double digits year-on-year, despite improvement in contribution from foreign exchange and fee and commission income. The dip largely came from reduced contribution from dividend income and gain on sale of securities. The administrative expenses went up considerably, slightly disturbing the cost to income ratio.

Reversals continued to be booked against NPLs, reflective of the bank's proactive monitoring and recovery efforts. That said, the reversals were significantly lower than those booked in the same period last year. ABL's loan book is one of the cleanest going around, with low single digit infection ratio, which is more than adequately provided for at well over 90 percent.  The bank seems well poised, and with signs of interest rate cycle reversing, a change in asset mix strategy may also be just around the corner.