Askrai Commercial Bank's profit in the nine months ended September 30 may almost double and it might pay a bonus to meet the capital requirement of State Bank of Pakistan.
The board meeting of Askari Commercial Bank is scheduled to take place on October 26 to approve the accounts for the third quarter ended September 30, 2004.
"We expect the earnings to show a gigantic jump of 95 percent in nine months of 2004 to close at Rs 1542 million (EPS Rs 12.28), compared to Rs 789 million (EPSPKR6.28) in 9MCY03", said Shahab Farooq, research analyst at Alfalah Securities. Askari is expected to pay a stock dividend (bonus) of 20 percent in order to meet SBP's paid-up capital requirement.
Both higher core earnings and non-earnings are expected to lead the surge in bottom line while the lowering of taxation would further provide a boost.
There are rumours that Askari has sold its holding in ABL to new sponsors. If this is true, there would be a further positive impact of Rs 2.28 per share (16.3 million shares assumed to be sold at Rs 43, while the purchased price was Rs 25.51).
Led by higher advances and rising interest rates, Askari's core earnings have been firming up and on year-on-year basis are expected to improve by 20 percent.
This improvement is expected on the back of (1) higher net interest margins and better interest spreads and (2) Higher advance to deposits ratio.
As most of the corporate and consumer lending is on floating basis, the rising interest rate movement is expected to rapidly translate into higher interest income for the banks.
Given almost 200 basis points improvement in 6 months treasury bills, the NIM are expected to improve to 76 percent from 64 percent in 9MCY03. Askari's ability to attract low cost non-remunerative funds is expected to help in improvement of NIM.
Higher advance to deposit ratio is a direct result of bank's changed focus on lending business. Apart from higher corporate funds requirements, Askari has explored the consumer and agriculture financing area vigorously. Askari's advance to deposits ratio has improved to 60 percent from 52 percent in 9mCY04.
NON-CORE EARNINGS: The non-core earnings would be higher by 102 percent in 9mCY04 on the back of (1) one-time capital gains on selling off NIT holding. (2) Higher fee and commission based income, accrued both due to higher customer reach and volatility in exchange rate.
The bank sold off its NIT holding of 17 million units in order to enhance its core equity for a possible acquisition of Allied Bank Limited.
LOW EFFECTIVE TAX RATES: The bank's earnings would be subject to lower effective tax rates for two reasons (1) 300 basis decline in tax rate applicable on banking company (2) Higher tax-exempt capital gains.
We expect full year effective rate to be lower by 23 percent on year-on-year basis.