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Bank Alfalah (BAFL): 4Q2018 EPS Rs1.16, up 68% YoY (-23% QoQ); DPS Rs 1.5/share (Below expectations)

• Bank Al-Falah Limited (BAFL) announced its 4Q2018 earnings today, wherein it reported EPS of Rs 1.16, 68% higher YoY, which was below expectations. The increase in earnings YoY was due to higher Net Interest Income (NII) as well as lower non-interest expenses. However, earnings were still below expectations due to lower fee income as well as higher provisioning than anticipated. The bank also gave a final cash dividend of Rs1.5/share.
• Net interest income of the bank rose by 17% YoY to Rs8.4bn, due to the impact of 425bps hike in policy rate during the year.
• Moreover, admin expenses fell by 5% YoY as the bank continues to focus on cost cutting. Resultantly, cost to income is down to 61% compared to 71% in the same period last year.
• The bank booked provision charge of Rs1.2bn during the quarter, up 4.2x YoY. The charge is due to subjective provisioning as per channel checks.
• Non-interest income fell by 8% YoY due to 4% decline in fee income as well as 17% fall in income from foreign currencies.
• For 2018, earnings were up 28% YoY primarily due to 1) higher NII, 2) lower non-interest expense and 3) higher non-interest income. BAFL also booked profit of Rs475mn from discontinued operations pertaining to its Afghan operations.
• Key risks for the company include 1) lower than expected hike in interest rate, 2) lower than expected advances and deposit growth, and 3) deterioration in Pakistan macros.