Allied Bank Limited (ABL) has released its financial results for the first half of 2025, marking a period of significant shifts in its balance sheet structure. Alongside the results, the bank announced an interim cash dividend of Rs4 per share, taking the cumulative payout for the year-to-date to Rs8 per share. While dividend distribution signals shareholder confidence, underlying trends in profitability and asset allocation tell a more complex story for the institution.
Profits for ABL in the first half of the year moderated compared to the same period in 2024. A lower average interest rate environment, coupled with double-digit growth in non-markup expenses, placed pressure on net earnings. This trend reflects broader challenges across Pakistan’s banking sector, where income from core banking operations has been squeezed by economic and regulatory factors.
A striking development was observed in the bank’s investment portfolio. By the end of June 2025, ABL’s investment holdings had nearly doubled compared to December 2024, rising by an extraordinary Rs950 billion. This represents one of the steepest increases in investments over any three- or six-month period in recent memory. As a result, the bank’s Investment to Deposit Ratio (IDR) surged to 92.6 percent, a level rarely seen and typically associated with coverage ratios rather than lending portfolios.
However, the bank’s advances book told a very different story. Advances dropped sharply by Rs315 billion since December 2024, leaving the total at Rs736 billion by mid-2025. This marks the thinnest advances position in at least three years and represents a steep 30 percent fall compared to the trillion-rupee threshold achieved at the end of calendar year 2024. In comparison, the broader banking industry experienced a 16 percent decline in advances during the same period, indicating that ABL’s contraction was nearly double the sector-wide trend.
State Bank of Pakistan (SBP) data shows that loans extended to Non-Banking Financial Institutions (NBFIs) accounted for almost half of the Rs2.3 trillion decline in sector-wide advances from December 2024, despite their relatively small share of only 5 percent in total advances. Analysts suggest that these loans were largely disbursed at the close of 2024 to meet regulatory requirements related to the Advances-to-Deposit Ratio (ADR), helping banks avoid higher tax burdens.
For ABL, the unwinding of these loans contributed to a dramatic fall in its ADR, which dropped by 19 percentage points since December 2024, falling below 33 percent. This marks one of the lowest ADR levels ever recorded for the bank and highlights the extent of its retreat from lending activity.
On the liabilities side, deposits grew by 11 percent from December 2024, reaching Rs2.2 trillion. While the growth is positive, it still lags behind the industry’s average deposit growth of 16 percent. ABL’s deposit base continues to rely heavily on current accounts, and though detailed figures are awaited, the bank is expected to have improved its Current Account and Savings Account (CASA) ratio compared to the same period last year.
In terms of income streams, non-markup income provided mixed results. Fee and commission income remained strong, while capital gains more than doubled year-on-year, driven by favorable returns from Eurobonds and federal government securities. However, income from foreign exchange declined, weighing down on overall non-markup growth. Meanwhile, administrative expenses rose by 13 percent year-on-year, outpacing inflation and resulting in a sharp deterioration of the cost-to-income ratio by over 8 percentage points.
While Pakistan’s macroeconomic indicators have shown improvement over the past year, private sector credit uptake has not materialized as strongly as expected. Government borrowing continues to dominate banking sector activity, leaving limited room for credit expansion in the private economy. Analysts anticipate that this trend may persist for at least another quarter, with banks likely to revisit lending targets toward the end of the year.
Allied Bank’s latest financial results underline the delicate balancing act faced by Pakistan’s commercial banks, as they navigate a low-lending, high-investment environment shaped by regulatory pressures and fiscal realities.