Corporate results: Bank Alfalah profits jump 22%

Abu Dhabi Group bank to issue Term Finance Certificates worth Rs5 billion.

KARACHI:

Bank Alfalah profits grew 22% during January to June 2012 as it managed to keep its key revenue source, net interest income, from declining at a time when some of its larger counterparts failed to.

The Abu Dhabi Group bank’s profits witnessed healthy growth to Rs2.33 billion during January to June 2012, according to unconsolidated results sent to the Karachi Stock Exchange on Thursday.

The bank’s bottom-line growth is fairly satisfactory. UBL profits grew the most with 39% followed by Allied Bank with 32% and Bank Alfalah came in third with 22% in the first six months of fiscal 2012.

“The improvement in earnings is attributable to 41% decline in provisioning charge and 13% increase in non-interest income, said BMA Capital analyst Nurali Barkatali.

Alongside the result, the board of directors also approved issuance of Term Finance Certificates worth Rs5 billion in their meeting held in Abu Dhabi, UAE.

Despite shrinking banking sector spreads, net interest income (NII) witnessed a meager growth of 3% whereas NII for top five banks declined by 3% during the period under review.

The State Bank of Pakistan’s move to increase minimum rate on savings account from 5% to 6% in May has hit the bank’s net interest income – the bank’s core earnings hard.

NII crawled up to Rs9.1 billion in the six months compared with the preceding period’s Rs8.8 billion.

The modest increase is attributable to improvement in earning assets and decline in cost of deposits, added Barkatali.

Moreover, non-interest income grew by 12% to Rs3.1 billion with major contribution expected from fee and commission income along with income from dealing in foreign currencies.

Administrative expenses increased to Rs7.5 billion from the preceding year’s Rs6.8 billion in line with the bank’s key objective to increase its footprint across the country. The bank has added at least seven branches during the period under review to 407 branches.

The bank’s stock price declined 2% to Rs16.8 during trade at the Karachi Stock Exchange on Thursday as the bottom-line was slightly below market expectation.

Outlook

In wake of the recent discount rate cut, mark-up spreads for the entire banking sector are bound to decline. However, it is very likely that there will be any aggressive shift in strategy of banks to extend advances amid long haunting energy crisis, added Barkatali. The analyst expects profits to decline by 5% in 2012 as per preliminary analysis.

Published in The Express Tribune, August 24^th, 2012.