Running a bank in todays liquidity constrained times is no joke. And the management of Allied Bank seems to understand this well.
Despite higher one-off expense under Voluntary Retirement Scheme, ABLs first quarter profits rose 23 percent year-on-year, as the lender controlled its cost of funds, while its non-core income increased by 30 percent.
In its continuing efforts to reduce cost of deposits, the bank sacrificed its market share by 56 bps to 7.4 percent in the quarter ending March; ABLs deposits base eroded by 3 percent during the period.
However, the bank tilted its deposits mix, by 1.7 percentage points, in favour of low-cost demand liabilities, with its mix of current and savings account increasing from 52.6 to 56 percent year-on-year.
Like its peers, HBL and MCB, the bank took its fair share of hit from the cash-starved economy as its gross advances declined by four percent during the first quarter 2010. Still, its line mangers gave a commendable performance. Working against the wind, the banks managers have been able to maintain its advance-to-deposits ratio at 75-76 percent during the last five quarters.
However, the bank could not continue arresting its infection ratio, as it did in the previous quarter. Though, ABLs loan infection ratio is far below the average of industry as well as that of peers, it soared by 53 bps to 7.05 percent in the three months ending March.
Adding score to banks performance is its falling provisions against bad debts, which dropped by 40 percent during the period. However, being prudent ABLs management increased Rs100 million in general provisioning, which improved the banks coverage ratio by 170 bps to 78.6 percent.
Higher provisioning in the previous quarter comes on account of banks heavy exposure of ailing Maple Leaf Cement on its books last year. However, Maples debt restructuring might add some sweetener in ABLs pie in the coming quarters.
Though, the banks loan provisioning is low on quarterly basis, higher provisioning on diminution in the value of investment, marginally reduced the core-income growth to 22 percent on yearly basis.
The non-core business provided valuable support to the bottom line as a decent gain on securities in stock market, dividend income and improved investment banking business facilitated ABLs other income to increase by 30 percent.
Efforts to restructure human resource, a move being exercised by many banking and non-banking companies after privatization, VRS continued to dent ABLs bottom line. Had it not been non-recurring expense on VRS, ABLs operating expenditure growth would have been restricted to 18.7 percent. Nonetheless, 20 percent increase in non-mark up expenses, reduced the growth in ABLs pre-tax profits by the same proportion.
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