KARACHI - Under the current economic situation, and with the implementation of Basel Accord II, the banking industry may have to confront issues of capital adequacy, risk profile and growing NPLs. Fund mobilization by bank also faces a predicament with increasing the deposits requiring high cost. Pakistan's economy has entered a challenging phase. Major economic indicators show a concerning situation, with deterioration witnessed in trade balance, fiscal deficit, price levels, monetary conditions and external debts. Uncertain political situation is having an underlying impact on the investment climate in the country. On the external front, Pakistan has remained mostly shielded from global financial and economic events thus far, but volatility and changes in the foreign exchange market could impact Pakistan's external trade and balances. GDP growth rate is likely to be below target. In its annual report Allied Bank Limited has pointed out that with the continuous monitoring of economic and industry environment, the bank is pursuing a managed growth approach, where quality of growth is given higher preference than just growing the balance sheet. As a result, emphasis is placed on better quality assets and lower cost of deposits. With this approach, the bank intends to maintain a steady growth trajectory. Though Allied Bank Limited Asset Management Company Limited, the bank will shortly be introducing a range of products to meet the growing demand for saving and investment. Together with consumer centric asset products, the bank will continue to increase its product rage and penetrate market share.  The bank made significant strides towards strategic priorities. Strong growth in key areas enabled to increase operating profit by 17pc to Rs. 8.8b. Strong corporate banking performance, increased emphasis on middle market, targeted deposit mobilization, improved customer confidence and strong branch network were few key factors behind the impressive growth. The after tax profit during FY 07, however slipped by 7 percent to Rs. 4.1 billion compared to Rs 4.4 billion for FY 06 primarily due to the stricter provisioning rules introduced by SBP later this year. The rules disallowed banks to take into account the Forced Sale Value of illiquid assets while calculating the provisioning against Non-Performing Loans. The bank has recorded a sum of Rs. 1.91 billion under the rules. Eliminating the impact of Forced Sale Value, the profit after tax would have increased by 21 percent. Consequently, Return of Equity was down to 23.5 percent from last years 30.2 percent, with Return on Assets, reaching 1.42 percent over last years 1.98 percent. Without provisioning impact in terms of the rules Return on Equity and Return on Asset would increase to 30.7 percent and 1.9 percent respectively.