ALLIED BANK LIMITED

S.KAMAL HAYDER KAZMI,
Research Analyst
, PAGE
July 20 - 26, 2009

Allied Bank Ltd, formerly Allied Bank of Pakistan Ltd., is a Pakistan-based bank, engaged in commercial banking and related services. Allied bank offers a suite of banking products and services. The bank operates through a network of 766 branches in over 300 cities and towns. The bank operates in five segments: Corporate finance, which includes investment banking activities, such as mergers and acquisitions, underwriting, privatization, securitization, initial public offers and secondary private placements; Trading and sales, which undertakes the bank's treasury, money market and capital market activities; Retail banking, which provides services to small borrowers, including consumers, small and medium enterprises (SMEs) and agriculture sector; Commercial banking, which includes loans, deposits and other transactions with corporate customers; and Payment and settlement, which includes payments and collections, funds transfer, clearing and settlement with the customers.

FINANCIAL OVERVIEW
(RS. 000)

INDICATORS MARCH 31, 2009 DEC 31, 2008
Investments 88,235,926 82,631,118
Advances 192,536,652 212,972,008
Lending 13,636,934 15,793,183
Borrowings 20,721,245 27,778,152
Deposits 284,683,211 297,475,321
Profit 9,992,923 8,332,921
EPS 2.24 2.10

At the end of the third quarter FY09, Allied bank managed to change the deposit mix by improving its Current Accounts and Saving Accounts (CASA) mix to 52.6% as against 50.5% as on Dec 31, 2008. Reliance on costly deposits has been further reduced and its share in the total deposit has come down to 47.4% as compared to 49.5% as on Dec 31, 2008. The Balance Sheet size of the bank is at Rs. 347,697 mn, whereas equity of the bank increased by 11.0% over Dec 2008 to reach Rs. 24,810 mn. The total deposits stood at Rs.284,683 mn as on March 31, 2009 as against Rs.297,475 mn on Dec 31, 2008.

The loan portfolio stood at Rs.203,542 mn as on March 31, 2009 as compared to Rs.223,640 mn as on Dec 31, 2008. During the quarter under review, markup income grew by 60% led primarily by improved yield on earning assets. Cost of deposits increased by 68% during 3QFY09. The major reasons for the increase in cost of deposits are the SBP regulation of paying profit at a minimum of 5%, effective June 1, 2008, on all PLS deposits and the staggered increases of 500 basis points in the SBP's discount rate during year 2008. The bank has achieved an operating profit of Rs 3,302 mn for the quarter, up by 38% over corresponding period of FY08 and profit after tax of Rs 1,448 mn, an increase of 6.7% over Rs. 1,357 mn.

SECTOR'S PERFORMANCE

MINIMUM CAPITAL REQUIRED FOR BANKS

YEARS ENDING CAPITAL (Rs.Bn)
Dec-2008 5
Dec -2009 6
Dec -2010 7
Dec -2011 8
Dec -2012 9
Dec -2013 10
Various sources

Banking sector's performance in the first quarter of 2009 saw the advances declined by 3% to Rs 3.06 trillion. In the same period last year, there had been a 6% growth, which was driven by demand from public sector enterprises. As a result of the decline in advances, gross advance to deposits ratio declined to 79% while net advances to deposits ratio stood at 73%. Due to sluggish advances growth, banks' investments increased by 17% in 1Q2009. Investments stood at Rs 1.148 trillion in March 2009. Investments to deposits ratio (IDR) of banks reached 30% at the end of the quarter from 26% on Dec 28, 2008. Deposits witnessed a growth of 2% during 1Q2009, inline with the growth observed in 1Q2008.

During the quarter, a provision against NPL's increased by 10%. Total customer deposits of the banking industry reached Rs 3.9 trillion ($48.1 bn) as of Mar 28, 2009, depicting a growth of 2% from Rs 3.8 trillion ($48.2 bn) at the end of Dec 2008. The gross advances of scheduled banks fell by 3% to Rs 3.1 trillion ($38 bn) as of Mar 28, 2008. After witnessing a fall of 19% or Rs 230 bn in 2008, banks' investment portfolio returned to normal as investments rose by 17% to Rs 1.1 trillion ($14.2bn) as of Mar 28, 2008. Lower deposit growth and strong credit off-take from the public sector had resulted in banking offloading investments to facilitate lending in 2008. However, the decline in credit off-take during 2009 thus far has resulted in the growth in investment portfolio.

COMMERCIAL BANKING

The Commercial & Retail Banking Group (CRBG) offers a variety of asset and liability-based retail products to its customers. Allied Group's focus has been on introducing various financing and investment products for its valuable customers, contributing to the steady growth of the financial industry. CRBG consists of four geographic groups and is further divided across 27 regions in Pakistan. In recent years, the Group has been working to find alternate ways of banking for customers, and has installed more ATMs to its already strong and largest ATM network. During 2007, CRBG also saw a phenomenal growth of 28 percent in liabilities. CRBG is consistent in lifting the Bank's brand image by emphasizing on good customer services and developing commercial assets and a cost effective deposit base.

FUTURE OUTLOOK

The economy of Pakistan has started showing the signs of improvement and almost all the economic indicators show a positive trend. However many milestones have yet to be achieved to put the economy back on the track of growth. In this challenging scenario, the strategy of Allied bank should focus on the quality of assets and improve the deposit mix to reduce cost to ensure steady growth in profit of the bank.