Allied Bank Limited (ABL) held a conference call for Analysts and Investors today. The management reviewed 1Q2020 results and gave guidance regarding the future outlook of the bank. Key highlights of the conference call were:

-The management believes the results during 1Q2020 were more reflective of dynamics during 2H2019. Going forward, the bank expects its performance to get affected by macroeconomic headwinds caused by the COVID19 outbreak.

-ABL recorded provisioning expense of PkR681mn for 1Q2020 largely driven by impairment on its equity portfolio. The bank expects its infection ratio to remain at existing level of 3.3% due to its prudent lending strategy. Moreover, going forward, ABL expects to maintain its ADR at current levels.

-The management further expects a 100bps cut in the policy rate in May20 and its investment strategy will be shaped accordingly. Currently, the bank has PkR217bn worth of PIBs with the fixed to floater PIB ratio at 50/50. The floater PIBs reprice every six months.

Allied Bank’s Capital Adequacy Ratio (CAR) currently stands at 23%, highest among the big banks. The bank expects to maintain its annual payout despite restriction by the central bank to pay out dividend during 2Q & 3Q2020. The bank is expected to payout cumulative dividend for 2Q-3Q2020 in 4Q2020.

-Fee Income will be affected by low number of investment banking transactions. Moreover, the effect of closure of branches is partially offset by increase in traffic on its digital platform. Currently, only 19% of branch network is closed temporarily due to COVID 19.

-Early repricing of advances to SME, Agriculture and consumer sector will not have material impact on NIMs and core income of the bank as they comprise a small portion of the total advances portfolio. The rest of the loan book will reprice normally over the span of 3-6 months.

-ABL is currently trading at one year forward P/Bv of 0.72x. We have “Outperform” rating on the stock with TP of PkR110/sh providing an upside of 37%.

KASB RESEARCH