Allied Bank Limited (ABL) ended 2019 at a high note, sharing its success with the shareholders, doling out Rs2 per share as final dividend, taking the full year dividends to Rs8 per share. There was hardly a blot in an almost impeccable profit and loss statement for CY19, with ABL ticking all the right boxes, based on prudence and cognizance of the challenging macroeconomic developments in the country, throughout the period.

The stupendous increase in markup earned trickled down to the bottom to help ABL achieve a significant 15 percent year-on-year increase in pretax profits. The profit growth is well rooted in the rise in average in quantum and yields on average earning assets, which witnessed changes as the situation demanded.

The asset reprofiling in the prevalent interest rate scenario meant the investment portfolio needed active duration management and ABL’s focus on shorter-tenor government papers enabled a fat topline growth. The investment portfolio underwent reprofiling, as peak interest rates were anticipated. The economic slowdown and high interest rates meant there was not an abundance of private sector credit appetite, making ABL place liquidity in government securities. The treasury bills were the favored instrument, with Rs543 billion invested. The PIBs were entrusted with Rs155 billion, with an increased share of 20 percent in total investments, from 9 percent previously.

The advances growth in the industry tapered owing to challenging economic environment. ABL stayed ahead of the curve, managing 10 percent growth in gross advances over December 2018, well over the industry growth of 4 percent in the same period. The loan book quality at ABL remains top notch with an infection ratio of 3.2 percent, adequately provided for with a coverage ratio north of 95 percent. These are well above the industry average, and ABL puts it down to proactive monitory and recovery efforts.

On the liabilities side, ABL is now in the trillion-rupee deposit club, although the overall deposit growth remained in check at 7 percent year-on-year. The quality of deposit growth remains excellent, with the growth in non-remunerative deposits at 17 percent over December 2018 outpacing growth in other high cost deposit categories.

The interest rates may take more time to start easing, than earlier anticipated, which suggests the investment portfolio may not be massively tinkered in the first half of CY20.  The economy still lacks an apparent growth stimulus to suddenly start a massive genuine quality credit appetite. ABL would not mind consolidating its balance sheet on prudence, even if lending options are far and few between.