Bank Alfalah Limited (BAFL) 1Q2020 conference call takeaways

Bank Alfalah Ehsaas Programme Runway Pakistan 978x652 2

Bank Alfalah Limited (BAFL) 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:

 Provisioning expense surged 2.4xY/Y to PkR1.5bn largely driven by full upfront
impairment charge (100% of total) taken on the equity portfolio despite relaxation
offered by SBP to charge only 25% of the total impairment. BAFL expects some of
this charge to reverse in 2Q2020 in anticipation of a rebound in equity markets.

 The bank also subjectively downgraded some of its client’s portfolio taking
provisioning against the advances. The Bank has been approached by clients for
deferment or rescheduling of their loans constituting approx. 7%-8% of the total
advances portfolio.

 The management expects NIMs to shrink going forward on account readjustment of
interest rate corridor (50bps increase in MDR) and early repricing of advances to
SME, Agri and consumer. However, healthy gains against PIBs portfolio sitting on the
balance sheet will offset the negative impact for the next two years.

 The bank will benefit from the new credit risk sharing mechanism introduced by the
SBP. The federal government has allocated PKR30bn spread over four years to share the burden of losses resulting from any bad loans originating from SMEs. Under the
arrangement, Federal Government will bear 40% first loss on the principal portion of
disbursed loans to SMEs, provided the SME has maximum turnover of PKR2bn.

 Investments increased 1.6xY/Y largely driven by buildup of PIB portfolio. The bank
currently holds PkR145bn worth of PIBs with PkR76bn floating rate PIBs.

 Fee income is expected to remain under pressure due to closure of branches and
lower number of transactions. At one point, almost 50% of the branch network was
down due to outbreak COVID19. However, most of the branches are back online
now. Moreover, the bank expects the branch expansion to remain subdued this year.

 Management expects another 200bps cut in the policy in the next two to three
monetary policy meetings. If the situation deteriorates further due to outbreak of
COVID19, the central bank could cut the policy by 300bps.

 The bank has invested significantly into building up its digital platform. Registration
via its digital application Alfa increased 25% in the last three months to 3mn
customers. The bank has opened 36 CDMs in the last year and plans to open 300
more by the end of 2020.

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