BAFL: High provisioning keeps earnings lower than estimates
- Bank Alfalah Limited (BAFL) announced its earnings for 1QCY20 in which the bank posted PAT of PKR 2,821 Mn (EPS: PKR 1.59). The earnings announcement disappointed our expectations due to higher administrative and provisioning expenses.
- Net-Interest Income of the bank improved by 6%/2% YoY/QoQ during the period to clock-in at PKR 11,781 Mn. The change in NII was largely in-line with estimates.
- High operating expenses during the quarter (cost to income ratio at 56% vis-à-vis 52% in 4QCY19) were major dampeners to our estimates. Increase in cost was possibly on account of 26 new branches (19 conventional and 7 Islamic) added during 4QCY19.
- Provisioning expenses dented overall earnings considerably in 1QCY20 having increased by 243% on a YoY and 50% on a QoQ basis. Our preliminary discussion with the management suggests that these expenses were roughly equally contributed by diminution in value of equity investments and loan provisioning expenses.
- The management prudently decided to provide some of its classified accounts keeping current situation into consideration, resulting into higher loan provisioning expenses during the quarter.
- The bank did not exercise the option of providing only 25% of its equity impairment and chose to provide the full amount. This remained one of the key reasons behind high equity provisioning expenses as compared to other banks in this quarter.
- We have a ‘Buy’ rating on BAFL.
Bank Alfalah Limited is a holding company. The Company's segments include Retail banking, including loans, deposits, trading activity, wealth management and other banking transactions with its retail and middle market customers; Corporate banking, which includes loans, deposits, project financing, trade financing, investment banking and other banking activities with its corporate and public sector customers; Treasury, including liquidity management activities carried out through borrowing, lending and money market operations; Consumer banking, including constitutes consumer financing activities with individual customers; Islamic banking, pertaining to its full scale Islamic Banking operations; International operations, which includes amounts related to its overseas operations, namely, commercial banking activities in Bangladesh and Afghanistan, and wholesale banking activities in the Kingdom of Bahrain, and Others, including merchant banking related activities.
BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.
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