Allied Bank Limited (ABL) announced its financial results for 1QCY19 accompanied with the first interim dividend of Rs2 per share. The pre-tax profits recorded a slight increase, whereas the imposition of Super Tax with retrospect took the after tax profits down considerably. The much changed interest rate dynamics and the overall economic slowdown gave a visible shift to the bank’s asset mix – which shifted from being investment heavy to be more focused on advances and lending to financial institutions.

The net interest income grew well in double digits, testament to the volumetric growth in earning assets and improved earning yield, in a rising interest rate scenario. ABL’s investment portfolio was optimized and came down to Rs477 billion as at March end 2019, mostly towards short term bills. The conditions demanded the surplus liquidity to be parked in lending to financial institutions, carrying the shortest tenors, rising manifolds to overRs165 billion.

There was not much increase in the advances portfolio, much in line with overall dull growth in advances across the industry. ABL did manage to keep its loan book clean with infection and coverage ratio to be envious of, at 3.6 and 98 percent, respectively – improving from 8 and 84 percent, previously. On the liabilities front, the deposit growth was rather muted, inching up by 2.4 percent, outpacing the industry growth of 1 percent during the period. ABL, in the process, also joined the trillion rupee deposit club. The focus on low cost deposits continued and the CASA further improved to 79 percent. However, ABL’s CASA, in comparison to peer still has ample room for improvement.

ABL saw a drop in non mark-up income, mainly on account of no contribution from gain on sale of securities. The bank made the choice to hold its equity portfolio given the market conditions and instead relied on fixed income and fee based income, both of which showed decent improvement during the period.

ABL’s balance sheet has grown from strength to strength and has been leveraged according to the market dynamics. The deposits have continued to grow in the right direction, whereas the asset mix is tilted towards reducing the interest rate risk. The non funded income remains a vital arm for the bank’s profitability. ABL would need a second invitation should the advances demand start to rise again – as all the soundness indicators seem very well in place.