Bank Alfalah Limited (BAFL)

Research Team

Table of Contents

In 9MCY23, Bank Alfalah Limited witnessed a substantial 92.34% YoY increase in net profitability, soaring to PKR 27.46 billion (EPS: PKR 17.41) compared to PKR 14.28 billion (EPS: PKR 8.03) in the same period last year. The boost in profitability during 3QCY23 was primarily driven by volumetric growth and higher interest rate.

The Net Interest Income (NII) of the bank surged by 68.42% to reach PKR 90.9 billion in 9MCY23, up from PKR 53.97 billion in SPLY, attributed to a 98.61% increase in interest earnings (PKR 286.28).

Similarly, non-mark-up income rose by 8.11% YoY to PKR 19.76 billion, driven by higher fees, commission, and brokerage income. However, dividend income and foreign exchange income experienced declines of 8% YoY and 9.78% YoY, respectively, during the period under review.

Non-mark-up expenses rose by 33.35% YoY, reaching PKR 47.91 billion. Operating expenses played a significant role in this increase.

An additional provision of Rs9.16 billion was incurred during 9MCY23, marking a 12.65% YoY rise compared to the provision expense in SPLY.

Bank Alfalah Limited’s market share in deposits, advances, trade, and remittances stood at 6.3%, 5.6%, 8.8%, and 14.2%, respectively. Advances’ market share growth was driven by consumer, SMEs, and Islamic lending.

The bank experienced robust growth in deposits and current deposits, witnessing a 31% YoY and 24% YoY increase, respectively, in 9MCY23. Bank Alfalah Limited holds the highest deposits in the country, ranking third in current deposits, second in home finance, ENR, and acquisitions, and third largest in auto finance. The bank received recognition as the best primary dealer by the State Bank of Pakistan (SBP) for FY23.

However, advances dropped by 11% YoY due to cautious lending and provisions, leading to a lower gross ADR (38.9%). Quarter-on-Quarter (QoQ) Non-Performing Loans (NPL) remained flat at 5.4%, while the infection ratio increased due to the aforementioned reasons. Nevertheless, the coverage ratio remained healthy at 112.5% in 9MCY23.

Investments experienced a significant 34% YoY surge. The portfolio remained tilted towards floater PIBs and T-Bills.

The Capital Adequacy Ratio (CAR) stood at 15.50%. CASA improved by 25% due to increased deposit growth in 3QCY23. The book value per share improved to PKR 75.92. Current accounts (CA) constituted 41% due to a shift from current to savings and term deposits to capitalize on market opportunities.

Revaluation surplus QoQ was mainly influenced by yield curve movement, loss realization due to the realignment of the book concerning interest rates outlook, and the construction of the fixed-rate bonds portfolio. The share of fixed PIBs increased from 15% to 18% with an average yield of 14% for three-year term.

Bank Alfalah Limited operates through 957 branches, including 317 Islamic Branches, in 225 cities of Pakistan. The bank has an international presence with ten international branches and one offshore banking unit in four countries. It operates two branches in Afghanistan.

The bank inaugurated its first-ever Digital Lifestyle Branch in Zamzama Karachi, equipped with biometrically secured lockers, a digital floor with
self-service kiosks, BNPL store, and a virtual service machine for account opening. Digital throughput and migration ratios improved by 84% (PKR 2.7 trillion) and 76% YoY in 9MCY23. G2P payments increased by 40% to PKR 102 billion, and digital lending grew by 70% to PKR 14 billion during the stated period.

Moving forward, the management anticipates continued growth in marketing expenditures. The bank aims to maintain CAR at comfortable levels while focusing on building a more extensive customer franchise, adding value despite challenges. Innovation and investments in key technologies will remain integral to the bank’s strategy. Additionally, Bank Alfalah Limited plans to launch another digital lifestyle branch in Lahore.

Furthermore, the bank aims to achieve the target of 1000 branches in the upcoming quarter. In CY24, Bank Alfalah plans to expand its branch network with 160 more branches, including 100 Islamic branches. The bank expects the ADR to normalize in the upcoming quarters, considering unexpected settlements in the third quarter. Additionally, the adoption of IFRS-9 depends on expected credit loss, as per the management’s statement.

Important Disclosures

Disclaimer: This report has been prepared by Chase Securities Pakistan (Private) Limited and is provided for information purposes only. Under no circumstances, this is to be used or considered as an offer to sell or solicitation or any offer to buy. While reasonable care has been taken to ensure that the information contained in this report is not untrue or misleading at the time of its publication, Chase Securities makes no representation as to its accuracy or completeness and it should not be relied upon as such. From time to time, Chase Securities and/or any of its officers or directors may, as permitted by applicable laws, have a position, or otherwise be interested in any transaction, in any securities directly or indirectly subject of this report Chase Securities as a firm may have business relationships, including investment banking relationships with the companies referred to in this report This report is provided only for the information of professional advisers who are expected to make their own investment decisions without undue reliance on this report and Chase Securities accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents At the same time, it should be noted that investments in capital markets are also subject to market risks This report may not be reproduced, distributed or published by any recipient for any purpose.

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