Bank Alfalah Limited: 3QCY21 earnings review

Bank Alfalah Limited (BAFL) announced its 3QCY21 results on Oct 25 reporting earnings of PKR 3.5Bn (EPS: PKR2.00), ↑29/2% YoY/QoQ respectively. The bank did not announce an interim dividend.

Key highlights of the result are summarized below:

Net Interest Income (NII) increased by 7% YoY despite NIMs compression on the back of low interest rates. The YoY improvement is credited to above average deposit growth and sizable build-up in assets. On a sequential basis, NII increased by 2%. Going forward, we expect NIMs to inch up as interest rates increase aided by volumetric growth in the balance sheet.

Non-funded income (NFI) of the bank underwent a healthy 15% YoY jump despite a 17% YoY decline in capital gains. The improvement emanated from a combination of increases in fee and forex income that shot up by 11% YoY and 43% YoY respectively. The surge in non-funded income can be attributed to 500bps YoY higher market share in the remittances business to 14.5% and 100bps higher share in the trade business to 7.4%. Moreover, we opine improved card related fee and greater branch banking to have further jacked up non-core income. On a sequential basis, NFI declined by 13% YoY due to softer fee income (down 3% YoY) and flattish forex income (up 1% YoY), however, the biggest hit came from capital gains that declined to ~PKR 380Mn (down 50% YoY) compared to ~PKR 750Mn booked in the previous quarter.

Operating expenses continued to remain on the higher side having shot up by 16/3% YoY/QoQ to PKR 9.3Bn. The surge is on the back of increased expense on new initiatives, investment in IT infrastructure, higher compensation expense and lastly, inflationary impact.

The bank booked a charge of PKR 269Mn in Sep’21 compared to PKR 1.5/0.9Bn booked in SQLY/previous quarter respectively. The decline in provisioning can be attributed to high coverage levels that almost touched 100% in 2Q.

Effective tax rate for the quarter clocked-in at 40.1%, slightly higher than expected but still lower than industry peers due to strong ADR levels of the bank (~60% in 2Q).

Courtesy – BMA Capital Management Ltd

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