Allied Bank expects interest rate increase by 2% in CY19

Allied Bank expects interest rate increase by 2% in CY19

KARACHI: Allied Bank Limited (ABL) is expecting increase in interest rate by 200 basis points or 2% during calendar year 2019.

The State Bank of Pakistan (SBP) has already increased policy rate 25 basis points to 10.25 percent in its monetary policy announcement on January 31, 2019 for next two months.

Referring to conference call by ABL, the analysts said that the bank was expecting an interest rate hike of up to 200 bps during CY19.

With the interest rates on the rise throughout CY18 the bank offloaded investments in PIBs (-73 percent YoY) and increased exposure towards T-Bills (+39 percent YoY).

Investment into PIBs will see an uptick and the bank will hold a higher stock of PIBs in CY19 as opposed to CY18.

The bank has reported a number of impressive improvements in key ratios: CASA has improved to 82 percent as at CY18 compared to 78 percent in CY17, infection has reduced to 3.5 percent vis-à-vis 4.6 percent in CY17 and coverage has strengthened to 97 percent as opposed to 93 percent in CY17.

Dividend income faced a suppression of 13 percent YoY primarily owing to liquidity constraints of IPPs.

The bank incurred Rs411 million in lieu of the deposit protection scheme introduced by the SBP last year.

Four percent Super tax on CY17 earnings (part of the recent economic reforms package) may be booked in 1QCY19 if approved by parliament this quarter.

Fee income witnessed an acceleration of 22 percent QoQ owing to healthy income from foreign remittances.

The bank holds a strong 10 percent market share of the remittances business.

A concrete coverage ratio and well below industry average infection ratio is likely to help the bank to curtail its credit costs going forward.

However in the rising interest rate scenario the management does expect provisioning expenses to surface and reversals will see a slowdown.

No Islamic branches were added in CY18 (total of 95 branches were added) because the bank has changed its strategy and focused on opening Islamic banking windows (total of 10 were added in CY18).

IFRS 9 implementation may be seen in CY20.

Retrospective impact will be routed through the balance sheet with an impact on equity while impact on year of implementation will have an effect on profitability.