Allied bank Ltd (ABL) is the fifth largest commercial bank by the deposit size in Pakistan. ABL provides range of banking facilities with focus on five business segments such as corporate finance, retail banking, trading and sales, payment and settlement and commercial banking. The bank possesses Rs 511 billion worth assets on its balance sheet as of 30th September 2011 and owns a branch network of 809 branches.
The bank's deposit base stood at Rs 385 billion as of 30th September 2011 representing 7 percent of the market share.
Profit Thanks to higher operating revenues and lower provisioning expenses, ABL recorded 32 percent year-on-year growth in its bottom line during the first nine months of CY11. The operating revenues totalled to Rs 23 billion in 9MCY11, 14.5 percent higher than the corresponding period a year ago. ABL declared EPS of Rs 8.98 as opposed to Rs 6.80 during the same period of last year. In CY10 the bank's bottom line improved by 15 percent, a notch above the top five banks' cumulative profit growth of 13 percent.
Markup income Benefiting from the expansion in its asset base, the bank's mark-up income rose by 12 percent, year on year, to Rs 37 billion during the first nine months of CY11. As the bank's investment portfolio surged by a whopping 71 percent during the first nine months of CY11, to Rs 207 billion; the bank made good money through investments in government securities. Simultaneously, ABL's advances fell by 8 percent to Rs 233 billion as of September 30, 2011.
The ABL remained conservative more than the industry in lending given that the industry's (all commercial banks) advances' level has dropped by about 4 percent during the period under review. Whereas, it stayed more aggressive on investment front since the industry's investments base has expanded by 31 percent in the first nine months of CY11.
The bank's investment to deposit ratio (IDR) stood at 54 percent at the end of September versus 33 percent at the end of December 2010. Therefore, the interest income accounted for 30 percent of the total mark-up revenue in 9MCY11 as opposed to 25 percent the same period a year ago.
Markup expenses The ABL's deposits rose by 4 percent during the first nine months to Rs 385 billion, resulting in higher mark-up expenses, when the Industry's deposit base has grown by around 5.8 percent. However, the bank outdid industry in deposit accumulation during the past five years since its deposit base registered a CAGR of 18 percent {during the past five years (2005-10)} as opposed to the industry's CAGR of 14 percent.
Since the fixed deposit increased by 11 percent during the first nine months of CY11 to Rs 121 billion at the end of September 2011, the bank's ratio of current and saving accounts (including non-remunerative) to total deposit eased down to 68.3 percent as of 30th September from 70.4 percent as of 30th December 2010.
Net mark-up income The net interest income picked up, year on year, by 12.5 percent to Rs 18.6 billion in 9MCY11. Hence, the gross spread ratio improved marginally year on year by 23 bps to 50 percent in 9MCY11. The top five banks' average gross spread ratio stood at 56 percent in 1HCY11.
Non performing loans Abetted by the drop in provisioning expense against non-performing loans and reversal for diminution in the value of investments, ABL's provisioning expenses declined in the period under consideration. The provisioning against non-performing loans and advances fell to Rs 1.35 billion in 9MCY11, from Rs 2.83 billion in 9MCY10.
The toxic loans increased by 10 percent during the first nine months to Rs 20.5 billion at the end of September 2011. The toxic loans in substandard category have increased by Rs 3.3 billion as of 30th September 2011 from Rs 1.6 billion as of 30th December, 2010.
In light of a growth in non-performing loans, the lenders' infection ratio deteriorated to 8.24 percent at the end of September 2011 from 6.96 percent at the end of December 2010. During the same period its coverage ratio slipped by 136 bps to 81.21 percent.
In the group of top five banks, the ABL enjoys the lowest infection ratio, which stood at 8 percent at the end of June 2011 as opposed to the group average ratio of 13.2 percent.
Non mark-up income Non mark-up income accrued a gain of 23 percent driven by higher investment banking fees, dividend income and income from dealing in foreign currencies. In the period under the review, the fee, commission, and brokerage income rose by 8.6 percent, while dividend income increased by 51 percent. The brokerage income and dividend income accounted for 72 percent of the total non mark-up income in 9MCY11.
Non mark-up expenses Cost cutting has been a major focus across service industries, but amid a high inflationary environment along with upgradation in IT infrastructure, the bank's administrative expenses rose by 18 percent, year on year in the period under review. However, the bank's income to expense ratio marginally narrowed to 2.27 in 9MCY11as compared to 2.43 percent during the corresponding period a year ago.
Industry's outlook In the midst of weak economic prospects, the banking industry will continue to bank on investment in government securities. The industry's investment to deposit ratio has increased by 51 percent as of 30th September 2011 from 41 percent at the end of 30th December 2010. However, a dramatic cut in interest rates-given that the key rate is down by 200 bps in the past three months-would thin out the industry's margins down the line.
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Allied Bank Limited
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Key Statistics Rs(mn) Sep '11 2010 2009 2008
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Deposits 384,957 371,284 328,875 297,475
Investments 207,157 121,173 94,789 82,647
Advances 232,610 253,100 237,344 212,972
NPLs 20,549 18,688 16,281 13,772
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Financial Ratios 9MCY11 CY10 CY09 CY08
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Gross Spread (%) 50 50 46 44
Income/ expense
ratio (times) 2.3 2.5 2.6 2.2
ROE(%) Na 28.8 30.5 21.2
ROA (%) Na 1.9 1.8 1.2
EPS after tax (Rs) 9.0 10.5 9.1 5.3
ADR (%) 60 68 72 72
Infection ratio (%) 8.2 7.0 6.5 6.2
Coverage Ratio(%) 81 83 77 76
Number of branches (no.) 809 806 779 766
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Source: Financial Reports & BR Research
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Rs(mn) 9MCY11 9MCY10 chg
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Mark-up Earned 37,234 33,254 12%
Mark-up Expensed (18,615) (16,704) 11%
Net Mark-up Income 18,618 16,550 12%
Provisioning (1,304) (3,153) -59%
Net Mark-up income
after provision 17,314 13,398 29%
Other income 4,513 3,656 23%
Operating revenues 23,131 20,207 14%
Other expenses (10,200) (8,304) 23%
Profit before taxation 11,627 8,750 33%
Profit after taxation 7,728 5,849 32%
EPS 8.98 6.80
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Source: Company Accounts
COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
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