In light of evolving macroeconomic situation and to ensure stability, the benchmark policy rate was increased gradually by 425 bps in absolute terms during the year, while on average the increase in rates was 136 bps as compared to 2017. At the same time banking industry witnessed challenging business environment stemming from rising cost of doing business, currency devaluation amidst increasing regulatory requirements with higher focus on compliance.
Despite the aforementioned challenging circumstances, Allied Bank Limited continued to follow strategy of sustainable growth by focusing on further strengthening risk and compliance management; offering digital banking products to enhance customer experience; optimizing operating efficiency by using technology-based solutions and intensifying capacity to ensure diversification in asset mix and innovative service offerings to earn fund based and fee-based revenues.
Volumetric growth in average earning assets, particularly advances, along with effective mix of shorter tenor investments in a rising interest rate scenario duly enabled the Bank to post a higher gross mark-up income by Rs.7,565 million, up 12% over last year. In-spite of volumetric growth in deposits with immediate re-pricing upon each policy rate change, gross mark-up expense growth curtailed to Rs.7,028 million.
As a result, the Bank posted net mark-up income of Rs.32,115 million against Rs.31,578 million in 2017, reflecting a growth of 2%. In view of the squeezing interest margins, management made concerted efforts towards generating non-mark-up income, which increased by Rs. 2,577 million or 30% against 2017 to close at Rs.11,289 million.
The realized gains on sale of securities, increased by Rs.1,741 million to close at Rs. 2,382 million for the year as against Rs. 641 million in 2017. ABL's timely diversification from the fixed rate bond portfolio in the first quarter mitigated the embedded mark to market loss risk in view of the subsequent interest rate hikes during the year. The prudent positioning and management of Bank's foreign exchange (FX) assets and liabilities has enabled the Bank to post a healthy FX income of Rs.1,504 million as against Rs.762 million in 2017, posting a growth of 97%.
In order to augment the fee-based income, various initiatives undertaken by ABL during the year under review, started yielding results; thereby fee and commission income posted an increase of 11% and amounted to Rs.4,360 million as against Rs. 3,917 million in 2017. The Bank continued to maintain blue-chip equity portfolio, resulting into sizeable dividend income of Rs.2,791 million despite lower dividend payouts from IPPs due to liquidity constraints.
During the year under review, ABL continued to optimize operating costs by implementing technology-based solutions despite accounting for the significant impacts of new and ongoing compliance related regulatory charges, additional costs emanating from retirement benefits and outreach expansion. Branch network of the Bank has increased to 1,345branches including 1,228 conventional and 117 Islamic banking branches across Pakistan, while concurrent focus on expanding ATM network was maintained, which has increased to 1,388 locations including 305 off-site ATMs as at December 31, 2018.
The Supreme Court of Pakistan vide order dated November 10, 2016 held that the amendments made in the law through Finance Act 2008, introduced by the Federal Government for the levy of Worker Welfare Fund (WWF) were not lawful. Federal Board of Revenue filed review petition against the subject order, which is currently pending for adjudication. Allied Bank Limited has reversed the provision against WWF. Resultantly, the total non-mark-up expenses of the Bank has increased by 6% to close at Rs.23,306 million.
Under the Suo Motu case SMC No. 20/2016 the Honourable Supreme Court had taken up the matter relating to pension arrangements of privatized banks. The Honourable Supreme Court of Pakistan concluded the Suo Motu case on February 13, 2018, by using judicial discretion and fixed the minimum pension and indexation levels for eligible staff, on humanitarian grounds. In view of the underlying judgement, the Bank under the guidance of legal counsel, has booked the related past service cost based on an annual actuarial valuation.
Profit before tax of Rs. 21,016 million earned by the Bank for the year ended December 31, 2018 as compared to Rs.20,879 million in 2017. Super Tax, which was initially levied vide Finance Act 2015, continued for the year. Resultantly effective tax rate stood at 39%. ABL posted profit after tax of Rs. 12,881 million as against Rs. 12,734 million in 2017. Resultantly the EPS of the Bank has stood at Rs.11.25 per share as compared to 11.12 per share in 2017. While Return on Assets (ROA) and Return on Equity (ROE) have stood at 1% and 16% respectively as at December 31, 2108.
Owing to continuous growth in informal business activities and reduction in Government borrowings from banking sector, total assets of banking industry witnessed growth of 5%; whereas total assets of the Bank increased by 8% to close at Rs.1,351 billion as at December 31, 2018. The major contribution in total assets included increase of Rs 66,281 million in advances, which posted a growth of 18% and stood at Rs. 438,319 million during the year under review. As a result, the ADR of the Bank has increased to 46%.
Lending to financial institutions increased by Rs 45,091 million to close at Rs.53,786 million while there was a net decrease in total investments by Rs 26,854 million, which stood at Rs.671,228 million as at December 31, 2018. Investment mix continued to shift from long-term PIBs to the short-term MTBs during the year in the wake of rising interest rate scenario. Resultantly investment to deposit ratio has declined by 11% as compared to last year.
Continued focus on recovery efforts has assisted in reducing Non-Performing Advances by Rs. 1,987 million to close at Rs.16,065 million, thereby infection ratio fell by 1% to close at 3.7% while coverage ratio improved to 96.7%. Provision against Non-Performing Loans has stood at Rs 15,533 million as at December 31, 2018, while no FSV benefit of underlying collateral has been taken while determining the provision against Non-Performing Advances as allowed under guidelines of the State Bank of Pakistan.
On the liabilities side, the deposit base of the Bank has registered a healthy increase of Rs 100,734 million and stood at Rs.984,475 million, indicative of a double-digit growth of 11% from the year 2017; well above the industry's deposits, which grew by 8%. The Bank continued its focus on increasing no cost deposits, with 15% growth in Non-remunerative current deposits which closed at Rs. 363,639 million. Resultantly, CASA deposit mix has improved to 82% as at December 31, 2018 from 78% as at December 31, 2017.
ABL's Equity base stood at Rs. 107,305 million. The Bank's Capital Adequacy ratio (CAR) has also stood well above the requirements of the State Bank of Pakistan. The standalone and consolidated CAR under Basel III has stood at 22.23% and 22.05% respectively. Common Equity Tier ratio (CET) and Tier 1 ratio (CET1) have stood at 17.34% as against the requirement of 6.0% and 7.5% respectively; clearly depicting a well-capitalized position of the Bank.-PR
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