Bank Alfalah Limited announced its 2QCY21 results today

Bank Alfalah Limited (BAFL) announced its 2QCY21 results today reporting above expected earnings of PKR 3.5Bn (EPS: PKR1.95), ↑25/0% YoY/QoQ respectively. The bank also announced an interim dividend of PKR 2/sh. Key highlights of the result are summarized below:

Net Interest Income (NII) increased by mere 1% on a YoY basis due to interest rate cuts over the past year. On a QoQ basis, NII increased by 13% which we opine is on account of greater investment income. Going forward, we expect NII to improve further on the back of sizable additions on the assets side.

Non Funded Income (NFI) on the other hand, declined by a marginal 1% on a YoY basis. The decline despite excellent performance on the fee income front (↑60% YoY), higher capital gains (~PKR 750Mn) and improved forex income (↑12% YoY) was due to the absence of PKR 1.8Bn unrealized gains on the held for trading portfolio that the bank booked last year. We expect the increase in fee income to be backed by greater commission income, card related fee and branch banking. Forex income, on the contrary has risen due to improved trade volumes, remittances flows and PKR volatility. The bank booked capital gains of PKR 755Mn in the outgoing quarter which emanated from a combination of equity and debt investments. On a sequential basis, non-core income rose by 8% despite 31% QoQ decline in capital gains as a result of robust fee (↑12% YoY) and forex income (↑62% YoY).

Operating expenses rose by 18/6% on a YoY/QoQ basis which is a resultant of greater expenditure on growth initiatives, increased remuneration expense and inflationary impact.

The bank booked a provision charge of PKR 934Mn in the QEJun21 which related largely to the loan book and was primarily due to exposure in one large corporation which has now been fully provided for.

Effective rate for the quarter clocked-in at 40.3%, slightly higher than 39% applicable on banks (35% Corporate Tax and 4% Super Tax) which we expect must be due to higher tax charge on income from debt securities.

Courtesy – BMA Capital Management Ltd.

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