Askari Bank (AKBL) was incorporated in Pakistan as a public limited company in October 1991. It started its commercial operations in April 1992. Since inception, the bank has concentrated on growth through improving service quality, investment in technology and people, utilising its extensive branch network which includes Islamic and Agricultural banking.
Askari Bank has expanded into a network of 261 branches/sub branches, including 34 dedicated Islamic banking branches, and a wholesale bank branch in Bahrain. A shared network of 5,903 online ATMs covers all major cities in Pakistan supports the delivery channels for customer service. As at December 31, 2012, the Bank had equity of Rs 19.7 billion and total assets of Rs 353 billion, with 907,984 banking customers, serviced by our 5,597 employees.
Askari Investment Management Limited and Askari Securities Limited are the subsidiaries of Askari Bank engaged in managing mutual funds and share brokerage, respectively. AKBL has its roots expanded in corporate and investment banking, bancassurance, investment banking and personal finance, mortgage finance, Islamic banking. During 2012, AKBL, jointly with China Mobile Pakistan, launched branchless banking programme under the brand name of "Timepey" which includes Timepey money transfer, Timepey bill payment, Timepey mobile top-up. The Bank is listed on all three stock exchanges of Pakistan.
FINANCIAL PERFORMANCE, 1QCY13: Dabbling in risk free government securities seems to be the favourite past time of the country's big banks Askari bank, despite being small, has been following the tide for quite some time now. An analysis of AKBL's advances vis-à-vis investments over five-year period shows that there is a continuous decline in advances-to-deposit ratio (ADR), while investment-to-deposit ratio has been on the rise. This is symptomatic of AKBL's cautious lending.
Though, not a preferred exercise for the bankers, investment in government securities makes sense for AKBL as it was able to garner significant amount of low cost deposits in the first quarter of 2013 (see CASA ratio). The bank's top line remained suffered from the same old plight: low interest rates coupled with lower advances made it lose its grounds significantly during 1QCY13. However, AKBL's low cost deposits largely soothed the net interest income (NII) by managing mark-up expenses. Resultantly, during the period, gross spread ratio shows some improvement.
What worry the most are its surging non performing loans (NPLs) despite vigilant lending of late. Currently, AKBL's toxic loans clock in at 18 percent - the highest level since CY08. During 1QCY13, AKBL proactively availed the relaxation of Rs 211 million allowed by SBP to maintain provisions in a time based manner.
AKBL's bottom line was counting on low provisioning and mark-up expenses. However, a sizeable drop in non-mark-up income turned around the scenario by tweaking the bottom line. Perhaps, a substantial sale of securities during the period contained the dividend income, thus shadowing the non-mark-up income.
However, sale of securities appear to be a prudent step, amid around Rs 2 billion of its investments having entered a non-performing zone. Though a skimpy amount at the moment, investments as such might be risky, costing the bank in terms of high provisioning charges. With Fauji consortium planning to acquire AKBL in the times to come, the forthcoming management is expected to undertake aggressive approach to get AKBL back into the position of higher profits and less infected portfolio.
SUMMING UP PAST PERFORMANCE (CY11-CY12): Partly because of back to back rate cuts in CY12 and partly due to bank's disinterest from the high yielding private sector (see ADR downticking), its top line couldn't help but slid by one percent year-on-year.
On the positive note, Askari bank's cost of deposits fell evident by a three percentage points rise in its low cost deposits (CASA). However, on the heels of increased floor on saving deposits, higher CASA couldn't sustain bank's net interest margin, as can be seen by a fall in its spread ratio in CY12.
What really battered the bank's bottom line was a huge rise of 52 percent in provisioning charges. This came on the heels of 12 percent rise in NPLs. The rise with NPLs coupled with a five percent year-on-year drop in advances pushed the infection ratio to 18 percent in CY12 from 16 percent in CY11.
The rise in provisioining charges was, to some extent, offset by encouraging growth in non-mark-up income which grew by 42 percent year-on-year despite slowdown of trading volumes. The main contributors for this increase were a oneoff dividend income with an increase of 258 percent, and gain on sale of investments that increased by 121.9 percent over 2011.
Coupled with provisioning charges, non-mark-up expense also proved to be harsh to the bank's bottom line. Boasting a growth of five percent year-on-year, non-mark-up expense pushed down the bottom line by 33 percent year-on-year.
FUTURE OUTLOOK: Banking sector already being beaten-up 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 shock 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 withered net interest margin of the banking sector is 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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Askari Bank Limited
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Rs (mn) CY11 CY12 1QCY13
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Mark-up Earned 32,769 32,404 7,286
Mark-up Expenses 22,699 22,973 5,100
Net Mark-up Income 10,070 9,431 2,187
Provisioning/(Reveral) 1,771 2,693 382
Net Mark-up Income after provision 8,298 6,738 1,805
Non Mark-up/Interest Income 3,018 4,316 853
Operating Revenues 11,316 11,054 2,658
Non Mark-up/Interest Expenses 8,874 9,316 2,236
Profit Before Taxation 2,455 1,766 427
Taxation 750 477 149
Profit After Taxation 1,705 1,289 279
EPS (Rs) 2.30 1.54 0.34
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Source: Company Accounts.
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AKBL - Key Performance Indicators
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Indicators CY11 CY12 1QCY13
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Infection Ratio 16% 18% 18%
Coverage Ratio 28% 34% 72%
Spread Ratio 31% 29% 30%
Capital Ratio 5% 6% 5%
IDR 46% 47% 53%
ADR 52% 47% 50%
CASA 68% 71% 73%
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