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BAFL_Analyst Briefing Takeaways, (AKD Off the Analyst's Desk May 05, 2023)

Bank Alfalah Limited (BAFL) held its 1QCY23 analyst briefing earlier today, wherein the management of the bank discussed the following:

• BAFL  posted NPAT of PkR10.7bn (EPS: PkR6.8) higher by 1.6xQoQ and 1.1xYoY. The earnings growth was attributed to healthy increase in the bank’s NII, to the tune of 96%YoY and 20%QoQ. NIMs at BAFL expanded by ~100bps on a sequential basis to 5.6% in 1QCY23, which the bank attributed to higher interest rates, alongside volumetric growth.
• Deposits at BAFL increased by 5%QoQ/32%YoY to PkR1.5tn at the end of the Mar’23 quarter. CA of the bank clocked in at 43.7% as compared to 44.5% in the previous quarter. The bank’s management stated that the heightened interest rate environment in the country has made it challenging to attract low-cost Current Accounts. The bank is not shying away from higher-cost deposits, as long as it is able to earn a healthy spread on the same.
• The bank’s Gross ADR stooped below 50% during the quarter, clocking in at 47.1%, compared to 51.5% in the earlier quarter. The bank attributed the dip to lower appetite of entities in the country to take on loan as a result of the heightened borrowing costs.
• Moreover, the bank is being cautious in lending to new customers due to the state of the economy, while it has also been witnessing termination of loans as businesses continue to struggle in the current macroeconomic environment. As a result, the bank guided towards mid-single-digit growth in the Advances book this year.
• Regarding the bank’s Investment book, management apprised that ~13% of the book is held in Fixed-rate PIBs (average yield of 11.5%, duration of ~3yrs), while 66% were held in Floating-rate PIBs.
• The bank apprised that the Apr’23 rate hike of ~100bps is yet to be repriced on some of its investment book, which could lead to further expansion in NIMs in the upcoming quarters.
• Cost-to-income ratio is expected to average ~50% in CY23, as the bank continues to expand its branch network (100 branch additions expected this year) along with heightened costs due to inflationary pressures.
• The bank posted a reversal in its provisioning expense during the quarter against the flood-related loan book that it had built in the previous quarter. To note, the provisioning expense stood at PkR4.3bn in 4QCY22, which dropped to PkR522mn in 1QCY23.  
• BAFL’s CAR at the end of the quarter clocked in at 14.7%, substantially higher than the 13.8% in the previous quarter. Going forward, the bank’s management guided towards maintaining a healthy capital buffer above the regulatory requirement. The bank is likely to continue with its payout policy going forward.