Bank Alfalah (BAFL) announced its 2QCY20 results today in which the bank recorded a Profit After Tax (PAT) of PKR 2,763mn (EPS: 1.55), down 10.5%/15.5% on YoY/QoQ. During 1HCY20, earnings clocked-in at PKR 5,584Mn (EPS: PKR 3.14).

Net Interest Income (NII) showed improvement on a YoY basis mainly due to sharp reduction in MDR and lag in repricing of assets. However, on a sequential basis, NII was down by 1.7% mainly due to some mark-up suspension in the overseas portfolio and realization of gains on AFS securities which led to lower NII during the quarter. To note, BAFL has booked a gain of PKR 1,779 on securities during the quarter.

Due to realization of gains, Non-Interest Income of the bank posted significant improvement during the quarter. However, fee income was down by 27.9%/20.8% on a YoY/QoQ basis to PKR 1,308Mn possibly due to lower trade business and COVID-19 related branch shutdowns. Excluding gains on securities, Non-interest income is actually down by 12.2%/13.1% on a YoY/QoQ basis.

Provisioning expenses also went up significantly during the quarter to clock-in at PKR 3,261Mn. We believe this is mainly due to a combination of specific and COVID-19 related increases in general provisions. Due to better performance of equities during 2QCY20, we believe there is some element of equity provision reversal in the quarter as well.

Operating expenses during the quarter, although higher as compared to SPLY, remained down on a QoQ basis, reflecting some improvement. Overall Cost/Income ratio improved to 48% during 2QCY20 from 56% recorded in the previous quarter.

Further details on the results are awaited. We have a BUY stance on the stock with Dec’20 TP of PKR 38. (BMA Capital Management Ltd).