AKBL – Results underperform expectations: Askari Bank Limited (AKBL) announced its CY14 financial results on February 13, 2015, in which the bank reported PAT of PKR4.0bn, translating into EPS of PKR3.19, against an LPS of PKR4.35 during the same period last year. 4QCY14 EPS clocked in at PKR0.72 against LPS of PKR1.22 during the consecutive period last year. The bank also announced a cash payout of PKR1.0/sh taking full year payout to PKR2.0/sh.

Growth in total revenues and slow provisioning primarily supported the CY14 profitability: AKBL posted stellar rebound in its CY14 earnings as the bank reported EPS of PKR3.19 against a LPS of PKR4.35 primarily driven by 1) slowdown in NPL provisioning as a result of high base 2) sharp growth in net interest income (NII) and 3) strong non-interest income.

Slowdown in NPL provisioning as a result of high base: AKBL’s asset quality posted notable improvement as NPL stock of the bank fell by 5% YoY to PKR31.3bn. NPL provisioning fell by 97% YoY to PKR322mn in CY14 against PKR11bn in CY13. Key asset quality ratios of the bank hpw also posted strong growth as infection ratio fell by 138bps YoY to 15.9% and NPL coverage increased by 300bps YoY to 87.4% in CY14. The bank also realized NPL reversals of PKR1.9bn (EPS Impact net of tax: PKR0.98) during the year which contributed to earnings rebound.

Sharp growth in net interest income (NII): AKBL’s net interest income (NII) grew by a hefty 38% YoY during CY14 to PKR11.9bn. This was largely driven by asset re-pricing which took place in the 1HCY14 after 100bps hike in discount rate together with substantial growth in high yielding government securities which grew by 2.0x YoY during CY14 forming 47% of the total investments in CY14 against 21% in CY13. AKBL also continued to improve its deposit mix increasing CASA by 3pp to 73% despite higher deposit mobilization during the year leading to a stronger improvement in interest yield (CY14: ↑80bps YoY) against jump in cost of funds (CY14: ↑50bps). Net interest margin (NIM) of the bank thus clocked in at 3.1% during the year against 2.6% in CY13, up 60bps YoY.