Pakistan's banking sector is navigating through an enigmatic economic and operating scenario which encompasses multi facet challenges emanating from changing business models, increasing regulatory compliance requirements, disruptive technological advancements, looming cyber security threats and rising risk of asset quality deterioration amidst low business generation and private sector credit demand due to the ongoing COVID-19 outbreak.
Under the current challenging circumstances, Allied Bank Limited (ABL), while remaining fully cognizant of the high downside risks to the economic and operating outlook given the uncertainty about the duration, magnitude and persistence of measures to contain the outbreak, has invoked business continuity policy. Banking being an essential service to the nation remained ABL's prime focus under these testing times. The main thrust remained on offering free of cost services to the nation through all digital banking channels in addition to the branch network.
COVID-19 pandemic related precautionary directives, announced by the Government of Pakistan in the last ten days of March 2020, have disrupted social and economic activity throughout the country. The quarter under review, however, largely witnessed business as usual. As a result, positive volumetric growth in average earning assets, improving spreads within an upward rising yield curve that led to 308bps increase in the average policy rate, effective management of repricing gaps, availing interbank lending opportunities and sizeable growth achieved in low cost and no cost deposits has enabled ABL to increase net interest income by 21%, which aggregated to reach Rs. 11,616 million compared to Rs. 9,585 million posted in the corresponding period of 2019.
Improved branch banking services in a highly competitive operating environment along with diversification of revenue streams through continuous enrichment of the service suite, strategic business arrangements with leading technology platforms and rising customer confidence amidst concrete steps undertaken to circumvent emerging cyber security and data governance threats has enabled ABL to post a double digit growth of 11% in fee income which thereby reached Rs. 1,543 million.
Continued active participation as a Primary Dealer (PD) along-with prudent disposal of Pakistan Investment Bonds amidst the evolving yield curve expectations and staggered de-recognition of equity portfolio within an uncertain macro-economic scenario, while observing a 12% reduction in dividend income, has resulted in capital gains of Rs. 1,101 million realized during the quarter. Correspondingly, non-markup income stood at Rs. 2,850 million as against Rs. 2,537 million in the corresponding period of 2019; reflecting a growth of 12%.
Digitization space in Pakistan is transforming rapidly towards more convenient and flexible ways of Banking. ABL while remaining resolute in contributing towards SBP's Financial Inclusion agenda, stayed conscious of the evolving operating scenario and emerging technological developments, hence resorting more focus on e-banking and digital channels; ATM network thereby expanded to 1,549 ATMs consisting of 1,201 on-site, 345 off-site and 3 Mobile Banking Units (MBU) which offers banking services of cash collection and cash payment while also operating as an ATM on wheels. Branch outreach, which expanded to 1,395 branches as at December 2019, is undergoing optimization and closed at 1,388 in March 2020; including 1,271 conventional and 117 Islamic Banking Branches.
Continued spending towards technological uplift for the "Digital Age", investment in human resource, regulatory compliance costs amidst FATF related rising KYC and AML/CFT requirements and cyber security measures have predominantly escalated the operating cost. As a result, operating expenses increased 19% during the quarter.
Existing systematic risks amidst the ensuing economic slowdown were further compounded by the unfolding implications of COVID-19 outbreak; increasing market uncertainty culminating into a lack luster performance by the Pakistan Stock Exchange (PSX) and the Bank prudently recognizing a net charge of Rs. 579 million for diminution in value of investments.
ABL's Profit Before Tax hence increased to Rs. 6,581 million for the quarter ended March 2020, compared to Rs. 6,250 million in corresponding period of 2019; registering growth of 5%.
Profit after tax stood at Rs. 4,018 million as against Rs. 2,985 million achieved in the corresponding period thereby depicting a growth rate of 35%. Consequently, ABL's EPS stood at Rs. 3.51 per share against an EPS of Rs.2.61 per share in the corresponding period.
In line with the stagnancy witnessed in overall industry advances, gross advances portfolio closed at Rs. 476,758 million. Persistent focus on maintaining a robust risk management framework, enabled ABL to further reduce its Non-Performing Loan portfolio to Rs. 15,841 million at end March 2020 from Rs. 15,854 million as at December 2019.
ABL's Infection and coverage ratio at end March 2020 stood at 3.3% and 96% respectively; significantly outperforming the December 2019 industry infection and coverage ratio of 8.1% and 84.7% respectively. No FSV benefit was availed while determining the provision against Non-Performing advances, allowed under guidelines of the State Bank of Pakistan.
Total deposits reached Rs. 1,041,881 million at end March 2020; depicting a 7% market share of the total industry deposits.
Proactively monitoring investment portfolio in the backdrop of enhanced market volatility and changing interest rates scenario, duration was optimized and overall portfolio reduced to close the quarter at Rs. 673,808 million; Accordingly, the totals assets of the Bank closed at Rs. 1,362,830 million while the Bank's equity base closed at Rs.113,088 million.
Capital Adequacy Ratio of the Bank stood at 23% against the statutory requirement of 11.5% which is indicative of a strong capital positioning of ABL.-PR
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