Allied Bank – double digit growth

Allied Bank Limited (ABL) had another stellar quarter, as the after-tax profits soared by 35 percent year-on-year. The balance sheet did not expand a great deal, much in line with the stagnancy observed across the industry. Much of the quarter was business as usual, as Covid-19 related impact was felt very late in March – and business activities were shut only for the last ten days of the quarter.

The considerably high average policy rate over previous year by 300 basis points, growth in low cost deposits, effective repricing management, and volumetric growth in average earning assets – all played a part in keeping the topline going. The net interest income increased well in double digits, with improved spreads.

The interest rate scenario during the quarter and expectations thereof demanded asset reprofiling, and the bank had started to focus on short term government securities. Slowdown in business activities across the country persisted, leading to stagnant advances growth, as genuine appetite for fresh credit from the private sector was not there. The low advances growth led ABL divert excess liquidity towards other asset avenues, as treasury bills were the favored instrument as at December end 2019. The changing interest rate scenario demanded continuous monitoring and change in the duration of portfolio, and the overall investment portfolio recued closing down at Rs674 billion.

On the non-markup income front, gain on securities led the way to an overall double digit increase over the same period last year. The fee income also remained strong growing by over 11 percent year-on-year, which the bank puts down to a variety of factors including rising customer confidence, diversification of revenue streams, improved branch banking services, among others.

Allied Bank proudly owns of the cleanest loan book in the industry with an infection ratio of only 3.3 percent, very adequately provided for at 96 percent. Prudent and robust risk management framework enable ABL to further lower its NPLs from the same period last year. On the liabilities front, the deposit growth was rather muted, but the quality of deposit went in the right direction, with the share of low and no cost deposits going up, from previous year.

The interest rates have come down crashing since the end of 1QCY20. The ground realities have significantly altered. There is no doubt that ABL and similar sized peers are well capitalized carrying sound indicators, but the sheer volume of business is likely to face a big decline. Granted that the central bank has announced various relief measures to businesses, the economic activity will take some time to come out of the rough, and ABL will have to share the burden. All said, ABL’s balance sheet strength should enable it sail smoothly even in the upcoming tough times.