Amana Bank March profit up; weaknesses seen in margins amid rising funding cost  

Amana Bank PLC reported some robust top and bottom line performance in the three months ended in March 31, 2022, but rising interest rates blunted the margins while the growth momentum could come to a standstill in the ensuing periods as the economy hit its lowest point with recession looming, clouding the future performance.  

The bank operates on islamic financing principles reported earnings of 9 cents a share or Rs.250.7 million for the January-March period, recording its highest quarterly profit since it began operations. 

The March quarter profit marked a 92 percent increase from 5 cents or Rs.130.6 million in the corresponding period a year ago. 

This is after hefty provisions made on account of possible bad loans and other financial asset losses and potentially their foreign exchange impact. 

For instance, the bank set aside Rs.242.3 million from profits compared to Rs.100.4 million in the same period in 2021, logging a 141 percent increase.

Massive impairment provisions define the banks’ interim statements in the March quarter which weighed heavily on its bottom line as the country declared default on its foreign currency borrowings while the economy turned from bad to worse, triggering higher provisions in expectation of higher non-performing loans from rupee borrowers. 
Meanwhile, the bank reported a net financing income of Rs.1.13 billion in the quarter, up 26 percent from the same period in 2021, made possible by higher growth in loans. 

However, the bank’s financing margin slipped 3.5 percent from 3.8 percent in December 2021 as the deposits swelled amid revaluation of liabilities under the weaker exchange rate while their cost of funds increased with rising rates. 

For instance, the bank’s deposit base rose by 10.0 percent or Rs.9.7 billion to Rs.105.9 billion in the three months but the rupee deposits grew by a much more modest 3.9 percent or Rs.3.2 billion. 

Meanwhile, the bank’s loans rose by Rs.11.0 billion or 14.1 percent to Rs.89.3 billion on the back of a rupee loan growth of Rs.9.0 billion. 

Term loans were behind the bulk of the growth which the bank mostly identified with the loans to small and medium enterprises. 

The fee and mission income grew by 12 percent to Rs.115.9 million. The net trading income surged to Rs.235.9 million from Rs.39.5 million.

The bank said despite the over 20 percent inflation, they managed to contain the increase in their total operating expenses to 8 percent in the quarter compared to the same period in 2021. 

Jeddah-based IsDB Group being the principal shareholder has 29.97 percent shareholding of Amana Bank.