Research Analyst
Jan 3 - 9, 2011

Bank Alfalah limited (BAFL) is engaged in commercial banking and related services. The bank was privatized in 1997. The Abu Dhabi Group, owner of the bank, has invested in technology to have an extensive range of products and services. They broadly include general banking, financial services, Islamic banking, consumer banking, treasury, and international banking.

(Rs in '000)

INDICATORS SEP 30,2010 SEP 30,2009
Profit before provision and tax 4,187,881 4,182,139
Provision against loans and advances-net (1,326,292) (2,088,976)
Provision for diminution in value of investment (611,064) (114,083)
  (1,937,356) (2,203,059)
Profit before tax 2,250,525 1,979,080
Taxation (749,008) (417,525)
Profit after tax 1,501,517 1,561,555
EPS (Rs) 1.11 1.26

The bank is currently operating through 373 branches that include 63 Islamic banking branches and seven foreign branches in Bangladesh, Afghanistan, and Bahrain. Bank Alfalah has expanded its branch network and deposit base, along with making profitable advances and increasing the range of products and services. Bank Alfalah is one of the top ten banks of Pakistan in terms of its assets that are six per cent of the total banking sector assets.

With Alfalah Musharaka homes, consumer can participate with Bank Alfalah-Islamic Banking Division (BAL-IBD) in joint ownership of property where BAL-IBD invests a certain amount, usually up to 80 per cent of the property value. Through monthly payments - a composite of rent for use of property and purchase of BAL-IBDs' Musharaka shares/units in the property to BAL-IBD consumer will be able to increase their stake in the property every month. The rental component will be readjusted every month to reflect their growing share of ownership in the property.

A host of Guarantee types are offered by BAL-IBD including performance, financial and payment guarantees. BAL-IBD also issues guarantees securing financing facilities to be availed from Islamic Banks and/or Conventional Banks' under Islamic modes of financing.

Furthermore, BAFL's profit after tax (PAT) is down by 31 per cent (YoY) at Rs0.897 billion (EPS: Rs0.71) during FY09, indicating weaker performance as compared to the banking industry as a whole, which witnessed a 24 per cent (YoY) increase in the profits. This is mainly due to lower net interest income after provisions, which decreased by 1 per cent (YoY) and higher operating expenses. Operating expenses, which stood higher by 10 per cent (YoY), are on the rise due to the expansion in branch network during FY09 (from 199 to 282 branches countrywide in just 2 years).

Meanwhile, the banking industry on average experienced rising net interest income.

Provisions increased by 15 per cent (YoY) during FY09 due to the rising infection rate in the 3rd quarter of the fiscal year, when NPLs of the banking industry rose by six per cent (QoQ) to Rs422 billion.

Declining brokerage and dividend incomes were substantially covered by income from dealing in foreign currencies. The financial markets have shown considerable improvement since FY08 resulting in realized and unrealized gains on securities, which have been the primary source of the higher non-interest income.

Deposits showed a modest growth rate of 8 per cent (YoY) showing restoring economic growth. This growth was slightly higher than the industry average of 7.8 per cent, proving suspicions that mid-tier banks were growing faster than the big 5 banks of Pakistan. In line with the overall banking industry, Bank Alfalah witnessed a decline in advances of 2 per cent (YoY) from Rs191.791 billion to Rs188.042 billion due to heightened credit risk of the private sector in comparison to the public sector. This has resulted in a shift towards investments in papers and bonds of PSEs, leading to a 31 per cent (YoY) increase in investments from Rs75.973 billion to Rs99.160 billion in FY09. Lending to financial institutions has shown a dramatic increase in FY09 by 351 per cent and earning assets have shown a growth of 11 per cent. Borrowing from financial institutions has risen from Rs13.690 billion to Rs20.653 billion, worsening the ADR from 64 per cent in FY08 to 58 per cent in FY09.

However, during the nine month period ended September 30, 2010, the bank's profit before provision and taxation stood at Rs4,187.881 million as compared to Rs4,182.139 million for the previous comparable period.


Pakistan witnessed slow economic growth rate in 2009. With impeded growth in the private sector, the banking sector is likely to suffer as a whole with a slow deposits growth rate and less opportunities for investments in private enterprises. High inflation, poor global standings, and low returns are likely to affect FDI in the country adversely as well. Continued funding to ease the public debt will stifle private investment and further lead to macroeconomic problems such as high inflation, low social mobility, and poverty. SBP has maintained its tight monetary stance by keeping the discount rate at 14 per cent.

For BAFL, future expansion through low cost funding sources might help in near future. The operating expenses are likely to continue the upward trend as the bank plans to expand its network further. BAFL can also enhance its deposits growth rate with higher returns to depositors as many small and medium-sized banks have been doing since last year.