JS Securities Limited – JS Research (04-05-2021)

Karachi, May 04, 2021 (PPI-OT): BAFL: 1QCY21 Corporate Briefing key takeaways

Bank Alfalah Ltd (BAFL) held a Corporate Briefing session to discuss its 1QCY21 results and shed some insights on its future course of action. Previously, the bank announced its latest quarterly (1QCY21) earnings at Rs1.95/share, up 23% YoY; where the growth was supported by realized capital gains. The bottom-line also gained support from 13% YoY higher Fee Income. On the other hand, Net Interest Income (NII) declined by 12% YoY over asset re-pricing. We present key takeaways from the session.

Key takeaways:

While deposits increased by 21% YoY, the bank has managed to improve mix of current account to 46% (+152bps YoY), which supported lower cost of deposits. Management expects to maintain deposit growth in line with industry during the ongoing calendar year.

With 70 new branches to be added to the current network this year, management also targets to mobilize deposits through digital channels.

Advances increased by 16% YoY, keeping ADR in the vicinity of 64%. Alongside, Infection ratio improved to 4.2%, with Coverage ratio increasing to 94%. In line with our base case, the management expects to expand its loan portfolio by 10% YoY during CY21E.

Investments jumped by 61% YoY, taking IDR to 65%. As at 1QCY21 end, 40% of the book consists of PIB Investments and 37% of T-Bills.

Given complete asset re-pricing, NIMs contracted by 160bps YoY, to 3.2% during the quarter. Management expects NIMs expansion from here onwards on (1) interest rate hike and (2) volumetric growth and investment book build up.

That being said, the management does not expect an interest rate hike in CY21.

On Non-Interest Income front, the bank’s Fee Income increased by 13% YoY, where growth was largely supported (1) 61% YoY higher income from Card related fee and (2) 123% YoY higher commission on remittances.

On Operating cost front, management expects Cost to Income ratio to remain around 60%, similar to 1QCY21.

Islamic deposits (16% of total deposits), increased by 26% YoY. Around a fifth of the bank’s total savings accounts are Shariah-based, which bear no Minimum Deposit Rate.

However, bottom-line contribution from Islamic operations declined from 30% in 1QCY20 to 14% in 1QCY21.

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