Bankers seem to have finally gotten a handle of the economic situation. The banker of todays Pakistan has found ways to churn out healthy profits for shareholders without excessively exposing them to the risky core business of lending aggressively.
Allied Bank Limited (ABL), one of Pakistans largest banks, announced a cash dividend of 20 percent and bonus shares of 10 percent. Accounting for the interim cash dividend the full year payout adds up to Rs4 per share for 2010.
Marginally outpacing market expectations the lender posted earnings-per-share of 10.52 for the year ending December 31 2010.
The deposit base of the bank increased by 13 percent during the period under review, where concerted efforts by branch managers led to an improvement of the CASA ratio by 127 bps to 70.6 percent. Major banks have tried to wean retail depositors off expensive time liabilities in favour of low cost short term deposits.
At the same time, advance mobilisation was concentrated in the commercial and retail sectors. An unstable economic environment has brought in an era of tough risk management causing gross advances to increase by just 7.5 percent in 2010. Advance-to-deposit ratio fell to 68 percent, losing 5.5 percent during the year.
In contrast, a 28 percent rise in the investments is indicative of the risk-averse affinity for sovereign paper in banking circles. ABLs investment-to-deposit ratio increased 4 percent during the year to 33 percent.
The dark cloud over advances has far from subsided as non performing loans increased by nearly 15 percent during the year. But while absolute numbers of bad assets continue to grow, the rate of increase has tapered off and is reflected in the decrease of provisions by nearly 10 percent over the corresponding period.
But while the infectious ratio of the bank has increased by 150 bps to 7 percent, it is well below the industry average according to a statement released after the announcement.
The weak economy saw non mark-up income dwindle by 4.8 percent. While cash management and trade finance reflected positive growth, they were not enough to make up for the scarcity of deal flow in investment banking. The banks management must concentrate on building its muscle in this area for the upcoming year.
At first glance, the operating expenses for the bank seem to be on the higher side in line with its peer group. However, according to the bank, accounting for a significant Rs294 million in voluntary retirement payments, administrative expenses track inflation, hovering around 16 percent.
The banks profit after tax stood at a healthy Rs8.2 billion for the year, but that wasn enough for it to challenge the direction of the stock price on Friday, where the benchmark index fell 244 points amidst panic selling. ABL shed 3.3 percent of its share price in the days trading.
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Allied Bank (ABL)
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P&L (Rs mn) CY10 CY09 chg
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Mark-up earned 44,993 41,122 9%
Mark-up expensed (22,428) (22,422) 0%
Net mark-up Income 22,565 18,700 21%
Provisioning (4,083) (4,498) -9%
Net mark-up income after provisions 18,482 14,202 30%
Non-markup income 5,672 5,958 -5%
Operating revenues 28,237 24,658 15%
Non-markup expenses (11,810) (9,624) 23%
Profit before taxation 12,343 10,536 17%
Profit after taxation 8,225 7,122 15%
EPS (Rs) 10.52 9.11 15%
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Source: KSE notice
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