Bank Alfalah Non-Performing Loans Increased in 2Q2024

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Staff Report : The Non-Performing Loans (NPL) of ratio Bank Alfalah (BAFL) slightly increased to 4.9% in 2Q2024, up from 4.7% in 2Q2023, due to IFRS-9 implementation. However, coverage remains strong at 118.5%. The Capital Adequacy Ratio (CAR) stands comfortably at 17.1%, above the minimum requirement.

Bank Alfalah (BAFL) held its 2Q2024 Corporate Briefing Session on August 22, 2024, where management discussed the bank’s financial performance and future outlook.Bank Alfalah Reports 53% YoY Growth in 2Q2024 EPS, Announces Rs2 Dividend

BAFL’s management confirmed that the Advance to Deposit Ratio (ADR) tax is now in effect, with a confident goal of meeting the 50% target. The gross ADR stood at 39% as of June 2024. The strategy moving forward includes slowing down deposit growth while focusing on increasing advances. No tax provisions were made for 1H2024, despite the lower ADR, due to strategic reasons.

Deposit growth is expected to be subdued, but the focus will be on improving the deposit mix. BAFL’s branch expansion plan remains unchanged, with 150 branches targeted for 2024, including at least 100 Islamic branches.

The bank is pursuing the acquisition of Samba Bank as part of its expansion plans, attracted by Samba’s clean books and strategic branch locations. While due diligence is nearing completion, the deal is still in its early stages.

Management anticipates further interest rate cuts by the SBP, expecting a 300-350bps reduction in the remaining monetary policy meetings, potentially bringing the interest rate to 16% by December 2024.

BAFL’s FX income grew 70% year-on-year and 32% quarter-on-quarter to Rs3.0bn in 2Q2024, driven by higher volumes. Additionally, 20% of the PIBs portfolio comprises fixed-rate securities with a 15% yield and a two-year duration.

BAFL announced consolidated earnings of Rs11.97bn (EPS of Rs7.59), marking a 53% year-on-year and 20% quarter-on-quarter increase for 2Q2024. First-half earnings reached Rs21.9bn, up 18% year-on-year, with a second interim cash dividend of Rs2/share, bringing the 1H2024 dividend to Rs4/share.

With a buy recommendation, BAFL is trading at a 2024E PE ratio of 2.3x and a PBV ratio of 0.5x.