Bank: ASKARI BANK LIMITED - Analysis of Financial Statements Financial Year 2003 - 2003 Quarterly Financial Year 2007

Askari Bank Limited, formerly "Askari Commercial Bank Limited", was incorporated on October 09, 1991 and commenced its operations in April 1992 as a public limited company. The bank is principally engaged in the banking business. It has a diverse customer base comprising of corporates, SMEs, individual savers, households and farmers.
Askari Investment Management Limited (AIM) is the wholly owned subsidiary of Askari Bank. The bank also has an offshore banking unit in Bahrain. The bank in 2006 launched Islamic Banking under the name "Askari Islamic Banking".
Analysis of financial performance
During 3QFY07, the bank's operating profit stood at Rs 3,073 million as compared to Rs 3,217 million in the corresponding period last year. The decline is mainly due to an increase in the administrative expenses due to an increase in branch network from 104 to 123. PAT increased by 7% due to favourable tax reversals. Deposits increased by 8% as compared to the past 9 months but advances did not increase by the same proportion reflecting an increase in the investments.

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Highlights-AKBL                                                     PKR (Rs) m
Year end: Dec                        9mths'07   9mths'06  Chg.(Rs)     Chg.(%)
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Net-interest income                     4,630      4,089        541       13.2
Provisions                                892        742        150       20.2
Net-interest income after provision     3,738      3,347        391       11.7
Non-interest income                     1,912      1,607        305       19.0
Non-interest expense                    3,468      2,478        989       39.9
Tax                                       323        742      (419)      -56.5
PAT                                     1,859      1,733        125        7.2
EPS                                      6.18       5.77       0.42        7.2
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Courtesy: fnetrade.com
The profitability of the company for the three quarters is a little below its previous years. Whereas on the positive side, the return on equity has already caught up with the previous, the other indicators still need to catch up. The interest income of the bank was much higher in these three quarters than the previous years. However, this aspect was offset by a simultaneous increase in the interest expenses of the bank.
The banking spread of the industry declined by 14 basis points in 2007, affecting the bank's earnings. The non-interest income's share in total income is also increasing gradually. Askari can be said to be progressing on this front in income generation from the two sources. This would enable it to buffer any effects of another fall in the banking spreads. Askari is also expanding its branch network and so has higher administrative expenses too.
As regards the deposits, the industry has been witnessing a shift in their composition from savings to fixed deposits. These would generate a higher return.
We can predict that the profitability of the bank for the year 2007 would further increase from the results of the three quarters to at least the level of fiscal year 2006.
The scenario of the NPLs does not seem very favorable for the bank. During the period under review, NPLs of the bank depicted a significant increase of 78% and amounted to Rs 6.5 billion as against Rs 3.6 billion in December 2006.
Their pace of growth has outdone the rate of increase in advances. The bank may face considerable credit risk from its loan defaulters.
The bank's advances witnessed marginal increases in consumer finances, especially Ijara financing and corporate financing while they observed a slight decline in the shares of SME and agriculture.
The assets of the bank witnessed some shift in their composition away from loans towards investments. This has also been the trend industry wide to meet the MCR requirements as directed by the State Bank of Pakistan. Though these investments offer lower returns than the loans, they are more preferable in this situation for the bank as it is struggling to collect its loans.
The debt profile of the bank appears to be improving. The share of equity as of total assets is increasing. This is indicative of the effort the bank is undertaking to meet the MCR requirements. This may also reduce the risk exposure of the bank against any further tightening in the monetary policy that is being already demanded by many sectors.
The liquidity of the bank has maintained a consistent trend, with its yield on earning assets always above the cost of funding them. Hence, the bank at least in the short run may be said to be in a comfortable position. This liquidity consistency may be attributed to the excess liquidity that prevailed in the industry due to high reserve growth of the banking sector. The State Bank of Pakistan intervened in this situation by contracting the monetary policy.
Also, post emergency declaration when the rupee fell, SBP intervened twice to ease the liquidity conditions in the market. SBP has prudently managed the liquidity while the bank also has certain arrangements to maintain its liquidity. It has most of its investments in treasury bills. The liquidity position may be predicted to remain similar to the above in the coming years. However, at the same time Askari needs to safeguard its liquidity against the increasing NPLs.
The solvency of the company has been successfully maintained over the years. As evident, the share of equity is increasing. This may be regarded as a move against the rise in deposit rates and a decrease in the banking spread of the banking sector. This healthy trend in solvency may be predicted to continue in the future. The greater than earning assets deposits are the result of excess reserve money growth while the increase in the non-performing advances has undermined the advances performance. With the gradual shift to investments, we may expect the adverse impact of the NPLs to reduce, but this may take a long time.
The market value of its share has shown an upward trend throughout. The company has been a consistent distributor of dividends. The increased profitability of the banking sector (an increase of around 100%) has made this sector one of the most lucrative ones to invest. This increasing marketability profile is reflective of Askari's high yields on earning assets and favorable liquidity and solvency positions. We may expect such trend to continue into the future.
The bank has maintained its reputation as one of the consistent payers of dividends. The high share price of the bank is accountable for this trend. The profits are likely to increase for the year-end 2007, resulting in greater EPS for the bank. This is expected to improve the 9 months figure for the dividend payout ratios.
Future outlook
There are demands being made for further tightening of the monetary policy. SBP may consider this option to curb the inflationary pressures. This would result in higher interest rates and may increase the banking spread of the sector, translating into higher profitability.
The year ended 2007 for Askari may experience a slight increase in its profit figures with the same liquidity and solvency picture. The stock market shows an uncertain trend. However, in the long run the market price of Askari is expected to increase. As the Islamic banking sector is also experiencing growth, (its balance sheet increased by 17.25% as compared to the balance sheet of conventional banks that increased by 11.2% as of June 2007) we can expect Askari to perform well on this front in the coming years.
As Askari is increasing its investments, we may expect it to maintain its capital adequacy in the short as well as the long run. However, the alarming increase in NPLs needs to be well protected. This requires Askari to formulate a more sound and prudent policy of loan collection. This may otherwise hamper its liquidity trend, which has been maintained consistently thus far.

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ASKARI BANK LIMITED
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Balance Sheet
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Year                                  2002        2003        2004        2005        2006      9 months
Assets                                     $           $           $           $           $   -  2007 $
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Cash and cash balances
with treasury banks                5,301,388   6,678,026   8,762,866  11,766,925  14,879,230  16,627,110
Balances with other banks          1,304,363   2,650,166   4,847,899   5,550,148   7,333,002   8,532,443
Lendings to financial
instituitions                      3,414,470   5,770,842   2,324,839  10,172,242   8,392,950   6,083,614
Investments                       26,759,001  22,104,425  17,239,157  25,708,194  28,625,915  42,702,704
Advances                          30,035,484  44,777,538  69,938,041  85,976,895  99,179,372  94,877,362
Other assets                       1,835,072   1,425,986   1,459,716   2,732,641   3,812,788   4,689,834
Operating fixed assets             1,663,295   1,979,919   2,595,023   3,192,862   3,810,331   4,985,152
Deferred tax assets                        0           0           0           0           0           0
                                  70,313,073  85,386,902 107,167,541 145,099,907 166,033,588 178,498,219
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Liabilities
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Bills payable                        608,481     973,703   1,227,093   1,315,680   1,839,077   3,347,988
Borrowings from
financial institutions            11,460,934  15,903,055  13,781,555  10,562,338  14,964,087  11,338,481
Deposits and
other accounts                    51,731,506  61,656,607  83,318,795 118,794,690 131,839,283 142,435,897
Sub-ordinated loans                        0           0   1,000,000   2,999,700   2,998,500   2,997,600
Liabilities against assets
subject to finance lease              54,548      37,350      14,159       1,459           0           0
Other liabilities                    987,575     962,592   1,282,981   2,271,393   2,603,113   4,190,168
Deferred tax liabilities           1,297,365     806,753     526,865     567,217     736,298     903,093
                                  66,140,409  80,340,060 101,151,448 136,512,477 154,980,358 165,213,227
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Net Assets                         4,172,664   5,046,842   6,016,093   8,587,430  11,053,230  13,284,992
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Represented by:
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Share capital                      1,087,314   1,141,680   1,255,848   1,507,018   2,004,333   3,006,499
Reserves                           1,939,236   2,759,599   4,317,301   5,862,074   5,814,754   6,412,134
Unappropriated profit                      0           0           0           0   1,799,979   1,858,567
                                   3,026,550   3,901,279   5,573,149   7,369,092   9,619,066  11,277,200
Surplus on revaluation of assets   1,146,114   1,145,563     442,944   1,218,338   1,434,164   2,007,792
                                   4,172,664   5,046,842   6,016,093   8,587,430  11,053,230  13,284,992
Total Assets and Liabilities      70,313,073  85,386,902 107,167,541 145,099,907 166,033,588 178,498,219
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ASKARI BANK LIMITED
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Income Statement
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Year                                  2002        2003        2004        2005        2006      9 months
                                           $           $           $           $           $       -2007
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Mark-up/return/
interest earned                    4,655,216   4,073,715   4,487,206   8,780,698  12,596,921  11,180,413
Mark-up/return/
interest expensed                  3,016,859   1,379,609   1,117,206   4,278,374   6,977,313   6,550,858
Net mark-up/
interest income                    1,638,357   2,694,106   3,370,000   4,502,324   5,619,608   4,629,555
Provision against
 non performing
loans and advances                   350,787     308,528     277,398     638,547   1,128,137     891,559
Provision for diminution                   0           0      38,066     -36,555         376           0
Bad debts written off directly            39           0           7           0           0           0
                                     350,826     308,528     315,471     601,992   1,128,513     891,559
Net mark-up/interest income
after provisions                   1,287,531   2,385,578   3,054,529   3,900,332   4,491,095   3,737,996
Non mark-up/ interest income
Fee, commission and
brokerage income                     416,946     524,775     649,988     838,561   1,013,660     812,260
Dividend income                       26,903      37,658      26,318      51,143     109,326     131,623
Income from trading in
government securities                      0           0           0           0           0     233,951
Income from dealing in
foreign currencies                   384,957     112,808     180,992     356,218     584,344     472,461
Gain on sale of investments                0           0           0      99,825     112,474           0
Unrealized loss on revalutaion
of investments-HFT net                     0           0           0        -582      -2,308       2,311
Other income                         220,200     278,512     776,230     206,819     321,758     258,949
Total non-markup/
interest income                    1,049,006     953,753   1,633,528   1,551,984   2,139,254   1,911,555
                                   2,336,537   3,339,331   4,688,057   5,452,316   6,630,349   5,649,551
Non mark-up/ interest expenses
Administrative expenses            1,090,382   1,436,304   1,845,179   2,591,985   3,277,353   3,467,316
Other provisions and
wrrite-offs                                0           0           0           0           0           0
Other charges                          2,133       1,227         138       1,832       6,141         541
Total non-markup/
interest expenses                  1,092,515   1,437,531   1,845,317   2,593,817   3,283,494   3,467,857
                                   1,244,022   1,901,800   2,842,740   2,858,499   3,346,855   2,181,694
Extraordinary/
unusual items                              0           0           0           0           0           0
Profit before taxation             1,244,022   1,901,800   2,842,740   2,858,499   3,346,855   2,181,694
Taxation - current                   436,768     873,639     876,089     828,774     983,875     413,808
prior years'                               0           0           0    -188,247           0    -283,950
deferred                             120,260     -74,904      43,611     196,558     113,006     193,269
                                     557,028     798,735     919,700     837,085   1,096,881     323,127
Profit after taxation                686,994   1,103,065   1,923,040   2,021,414   2,249,974   1,858,567
Unappropriated profit brought for          0           0           0           0   1,617,597   1,799,979
Profit available for appropriation   686,994   1,103,065   1,923,040   2,021,414   3,867,571   3,658,546
Basic earnings
per share - (Rupees)                    6.32        9.66       15.31       13.41       11.23        6.18
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COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].