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ABL -1QCY23 Result Review, (AKD Off the Analyst's Desk Apr 27, 2023)

Allied Bank Limited (ABL) reported its 1QCY23 earnings at PkR7.6bn (EPS: PkR6.6), lower by 11%QoQ and higher by 57%YoY. The earnings were largely in line with our estimates.

• Net interest income at ABL contracted by 4%QoQ to PkR20.5bn, which was substantially lower than our estimates. Unlike the other conventional banks in our coverage, ABL posted NIMs attrition on a sequential basis, to the tune of ~50bps, clocking in at ~4% in 1QCY23 compared to 4.5% in the earlier quarter.
• The markup expensed by the bank during the quarter grew by 15%QoQ, whereas the markup earned grew at relatively lower rate of 9%QoQ.
• The respite to ABL’s bottomline during the quarter came from the mammoth 57%QoQ increase in non-interest income, which clocked in at PkR6.8bn, significantly higher than our estimate of PkR4.3bn. The bank greatly benefited from the currency depreciation during the quarter, with the FX income at ABL growing by 3xQoQ to PkR3.2bn in 1QCY23.
• However, the positive contribution of the non-interest income was offset by higher provisioning during the period, wherein the bank recorded provisions of PkR2.3bn, compared to a meager PkR435mn in the previous quarter.
• Operating expenses for ABL remained flat on a sequential basis, clocking in at PkR11.6bn for the quarter. The cost-to-income ratio of the bank improved on a QoQ basis, from 45% in 4QCY22 to 42% in 1QCY23. 
• Higher taxation during the period dampened the earnings for ABL in 1QCY23, with the effective tax rate in the quarter clocking in at 43% as compared to 37% in the preceding quarter.
• Alongside the earnings, the bank also announced a cash dividend of PkR2.5/sh, in line with our estimates, corresponding to a payout ratio of 38% for the quarter.