Allied Bank announces lower profits in first half of 2013

Despite growth in core operations earnings falter as non-core income drops.

KARACHI:

Allied Bank reported 17% lower profits for the first half of 2013, clocking in at Rs5.59 billion, as the bank shifted its lending portfolio towards interest bearing bonds from dividend-yielding mutual funds.

The bank made Rs6.74 billion in the corresponding period of 2012.

According to a notice sent to the Karachi Stock Exchange, the bank also announced a dividend of Rs1.25 per share, bringing the cumulative payout to Rs2.5 per share for the full year.

Core income – net interest income – of the bank grew 4% in the period from Rs10 billion to Rs10.4 billion as the bank made a strategic shift in its lending portfolio by lending to the government at risk-free rates. A bank’s net interest income is defined as the difference between the interest rate it charges its borrowers and the interest rate it pays out to depositors.

Many banks now prefer lending to the government by buying bonds and treasury bills in the light of State Bank of Pakistan’s expansionary monetary policy in the previous year, where interest rates are slashed keeping up with falling inflation rates.

Better asset quality resulted in bank provisioning lesser amounts towards bad loans, which is reflected in provisioning being in the positive for the period. Resultantly, net interest income after provisions reported an increase of 6.5%.

Allied Bank’s non-core operations, bucking the trend in the sector, posted a decline of 29% to Rs15.42 billion during the semi-annual period even though other income shot up nine times, but was not enough to absorb the decline in dividend earnings and capital gains.

Contained 3% increase in non-interest expense also supported bottom-line growth.

Published in The Express Tribune, August 22^nd 2013.

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