Allied Bank Limited

Allied Bank started its operations in Lahore independence in 1942 under the name of Australasia Bank. It became Allied Bank of Pakistan in 1974. In August 2004, because of capital reconstruction, the bank's ownership was transferred to a consortium comprising Ibrahim Group; hence, it was renamed as Allied Bank Limited in 2005.
As of now, with its existence of over 70 years, the bank has built itself a foundation with a strong equity, assets and deposit base. It offers universal banking services, while placing major emphasis on retail banking. The Bank has a large network of over 830 online branches in Pakistan and offers various technology-based products and services to its diverse clientele.
FINANCIAL PERFORMANCE, 1QCY13 Allied Bank, the country's fifth largest lender, didn't shy away from lazy banking in the quarter ending March 2013. Following the footsteps of its mighty mates, ABL counted on its low cost deposits to jack up its exposure in government securities, while giving private sector lending a wide berth.
Essentially, ABLs private sector lending is proportionally higher than its investments. However, the sluggish growth pattern witnessed by its advances vis-à-vis investments in the first quarter of CY13 drags ABL to the list of easy bankers.
The bank enjoys the lowest infection ratio among its peer group and by undertaking more vigilant lending stance it was able to further cut its non-performing loans. However, on the negative note, restrictive lending rendered ABL largely unsuccessful in sustaining its bottom line which slid by eight percent year-on-year in 1QCY13. Besides cautious lending approach, declining discount rate also lent a due hand in hampering ABL's top line growth. The skimpy growth mustered by top line faded further by rising mark-up expenses owing to a whopping 27 percent year-on-year growth in deposits. Unfortunately, the deposit growth couldn't uplift its low cost deposits (see CASA ratio).
ABL's performance reveals that parking funds in government securities is not the ultimate safe-haven from adverse industry backdrop. In fact, it might go awry if other factors turn unfavourable. For instance, until CY12, ABL's bottom line was garnering considerable support from non mark-up income, particularly dividend income. Nevertheless, might be due to sizeable sale of securities in CY12, and muted returns, dividend income growth remained muted, resulting in a drop in its non mark-up income in 1QCY13. This proved to be a massive blow to ABL's bottom line. While the expected reversal in monetary cycle might embellish the banks top lines, increased cost on saving deposits tends to steal the charm. How banks leverage the impending circumstances would be a real feat.
SUMMING UP PAST PERFORMANCE (CY11-12) The performance of Allied Bank in CY12 gives a perception of it as an investment bank. As has been the case with other banks, particularly the bigger ones, a big chunk of asset growth was attributable to a surge in investments, particularly in the government papers.
Investments grew nearly 37 percent during the year, against a modest growth in advances of 11 percent for the same period. ABLs ADR as a result, fell further to 53 percent, from 61 percent at the end of CY11. With a four percent year-on-year drop in top line coupled with a significant 17 percent growth in mark-up expense, net mark-up income slid by a massive 27 percent year-on-year. This also played a part in shrinking the gross spread ratio from 48.5 percent last year, to 37 percent for CY12. Moreover, the requirement of increased return on saving deposits also played its part.
The NPLs have largely remained flat at Rs 20.6 billion with infection ratio constant at eight percent. ABL has the bad loans well covered with a high coverage ratio of 86 percent. What really turnaround the game, was an impressive rise in the operating income, which almost doubled from the previous year. ABL booked gains on its investments in listed companies as the gain on sale of securities more than doubled during the year. Dividend income formed the major chunk of other operating income, tripling to over Rs 8 billion for the period. ABL increased its exposure in high dividend yielding stocks, such as Hubco and top fertiliser companies, hence, massive dividends. Largely on account of lower provisioning charges and exceptionally high other income, the bottom line was able to garner a 16 percent year-on-year growth.
FUTURE OUTLOOK Banking sector already battered by incessant rate cuts, hike in floor rate on saving deposits and the imposition of calculation of profit on the average balance of saving deposits, was given another jolt by SBP in the recent monetary policy announced on June 21.
By further reducing the discount rate by 50 basis points to nine percent, the already dried up net interest margin of the banking sector are expected to drop by further by 15-30 basis points. This might pave way for the banks to turn its gaze towards the high yielding private sector. However, this will come at the opportunity cost of proportionally higher toxic assets. Now, the real test of the banks' efficiency is how they keep their bottom lines vigorous while pushing its NPLs southwards.

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Allied Bank Limited

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Indicators                        CY11      CY12    1QCY13

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Infection Ratio                     8%        8%        7%

Coverage Ratio                     87%       86%       88%

Spread Ratio                       48%       37%       39%

Capital Ratio                       8%        8%        9%

IDR                                49%       52%       49%

ADR                                61%       53%       51%

CASA                               72%       68%       70%

ROA                              1.99%     1.88%     0.45%

ROE                                24%       23%        5%

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Source: Company Accounts.

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Allied Bank Limited (Consolidated P&L)

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(Rs mn)                           CY11      CY12    1QCY13

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Mark-up Earned                   51,829    49,512    12,729

Mark-up Expenses                 26,696    31,181     7,720

Net Mark-up Income               25,133    18,331     5,009

Provisioning                     3,009       651      (43)

Net Mark-up Income

 after provisions               22,124    17,680     5,053

Non Mark-up/Interest Income      7,264    14,245     2,588

Operating Revenues              29,387    31,925     7,640

Non Mark-up/Interest Expenses   14,130    15,779     3,649

Profit Before Taxation          15,258    16,146     3,991

Taxation                         5,002     4,264     1,141

Profit After Taxation           10,256    11,882     2,850

EPS (Rs)                         10.84     12.56      2.74

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