Allied Bank Limited (ABL) posted another quarter of profitability growth, albeit in low single digit. The yields on earning assets was comparatively lower than last year due to lower benchmark interest rates on advances and investment, but the increase in average volume of earning assets restricted the decline in markup earned.

The increase in average borrowing volumes over the same period last year led to a slight increase in interest expense, resulting in a lower net markup income year-on-year. As the yields remained low, ABL emphasized on capitalizing diversified revenue streams, bolstering the non-funded income significantly.

The fee and commission income was at the core of non-funded income, registering an increased of 23 percent year-on-year. As dividend distribution restrictions were lifted, dividend income more than doubled during the period crossing Rs18 billion. The timely management of the equity and fixed income portfolio also yielded healthy rise of 24 percent year-on-year in capital gain income. The administrative expenses went up owing to inflationary pressures, currency depreciation, and continued technology investment.

On the balance sheet front, investments in government securities continued to be the favored asset type. The investment portfolio increased by a massive 44 percent, taking the IDR to an unprecedented 88 percent. The usual liquid options of treasury bills and PIBs remained the core recipients. There was finally some movement in the advances portfolio, which went up by 5 percent during the period, having earlier gone down by 9 percent in the same period last year. The Advances to Deposit ratio at 40 percent though continues to be on the lower end.

The deposit base expanded by 11 percent during the period in line with industrywide growth, where current account balances witnessed growth of 15 percent, underpinning ABL’s relentless focus on mobilizing low-cost deposits. The CASA ratio as on end September 2021 stood at 8 percent, with current account to total deposit mix at a healthy and growing 42 percent.

The loan book remains clean with a low infection and adequate provisioning, whereas asset reprofiling should keep the returns coming. Lack of genuine credit demand is often pinned as the reason for slow advances growth, and it remains to be seen whether the coming quarters will see the tide change. That said, ABL’s book is as clean and healthy as they come, with or without advances growth.