You reap what you sow! And Askari Bank (KSE: AKBL) is precisely bearing the fruits of its labour ever since the takeover by Fauji Foundation Group. Recall that until CY13, the banks bottomline had been landing in red owing to aggressive book-cleaning initiatives adopted by its new management. Since then, Askaris swift recovery is indeed commendable, and the 9MCY14 financials are a testament to that.
Clearly, the turning point for AKBL has been the reversals in provisioning against non-performing loans. A reversal to the tune of Rs365 million as opposed to a provisioning expense of Rs7,392 million signals a significant improvement in the banks asset quality.
Besides, Net Interest Margins (NIMs) also flaunted a healthy increase of 38 percent, thus taking the spread ratio up by 400 bps. Contrary to the industry-wide tendency of basking in lucrative yields on risk-free government securities, AKBL seems to focusing on building its advances portfolio and rightly positioning its low-cost deposits. And with an unusually high advances-to-deposit (ADR) ratio of 50 percent and a CASA ratio of 78 percent as of June 2014, soaring spreads and net margins are simply a payback.
During the nine-month period, non-markup income also lent a good hand in comforting the bottomline. This growth in non-markup income came on the heels of healthy capital gains and a rise in fee, commissions and brokerage income. Owing to the aforementioned factors, AKBLs bottomline boasted a profit of Rs3,112 million in 9MCY14, in stark contrast to a loss of Rs3,949 million in the corresponding period last year.
The key takeaway from AKBLs nine-month result is that if a bank continues rationalisation of its deposit-mix, seeks improvement in coverage ratio, and lends more at the same time somehow shrinks its NPLs, refined bottomline would just be the score.
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Askari Bank Limited (Unconsolidated P&L)
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Rs (mn) 9MCY14 9MCY13 Chg
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Markup Earned 24,964 20,617 21%
Markup Expenses (16,197) (14,284) 13%
Net Markup Income 8,767 6,333 38%
Provisioning/(Reveral) against advance 365 (7,392) -
Net Markup Income after provisions 8,871 (1,651) -
Non Mark-up/Interest Income 3,776 2,773 36%
Total income 12,647 1,122 1027%
Non Mark-up/Interest Expenses (8,224) (7,282) 13%
Profit Before Taxation 4,423 (6,160) -
Taxation (1,311) 2,211 -
Profit After Taxation 3,112 (3,949) -
EPS (Rs.) 2.47 (3.13)
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