The bank was privatised in 2004 with major ownership stake and management control held by Aga Khan Fund for economic development (AKFED). HBL has its presence in 25 countries besides having its subsidiaries in Hong Kong and the UK, affiliates in Nepal, Kenya and Kyrgyzstan and representative offices in Iran and China.
HBL has the largest Corporate Banking portfolio in the country with an active Investment Banking arm. Moreover, SME and Agriculture lending programs and banking services are offered in urban and rural centers.
Performance Snapshot CY16 Pakistan's largest commercial bank, HBL posted a minor year-on-year dip of 3 percent in after-tax profits in CY16. A better way to look at this is HBL's exceptional performance to nearly maintain profits at yesteryear's level - despite a challenging operating environment. HBL also doled out Rs 14/share as cash dividend, at par with CY15.
HBL seems to have grown and improved its balance sheet significantly. Such is the sheer size and quality of HBL's balance sheet that no other bank compares with the might. HBL now boasts of a balance sheet in excess of a mammoth Rs 2.5 trillion, a 14 percent growth over 2015.
HBL's liability managers did a great job, as the deposit base expanded by a massive 15 percent - well over industry average. Considering HBL's already mammoth size of deposit, achieving a double digit growth is a tremendous feat as the deposit base now is in touching distance of Rs 2 trillion.
Better still, bulk of this increase was seen in current accounts, which grew by 16 percent over December 2015 and now account for a sizeable 37 percent of total deposits. HBL's CASA remained strong, evident from a 5 percent year-on-year increase in net mark-up income, despite a flattish top line. The cost of deposits has continued to go down, quarter after quarter.
On the asset front, there was considerable growth seen in advances, after a long time, which grew 17 percent over December 2015. In absolute terms, HBL added more advances than investments to its asset portfolio, which is a welcome change. The bank puts it down to improved economic climate, as corporate, SME, and consumer lending segments witnessed growth.
On the asset front, nothing much seems to have changed as investments continue to be the preferred asset avenue. HBL's IDR still hovers over 70 percent, while the ADR is barely touching 40 percent. But if recent trends are any guide, advances should continue to outpace investments in the near term. That would also make business sense, as the yields on PIBs and treasury bills are nowhere near as lucrative as they once were.
HBL's non-core income continues to ably support the bottom-line, as record growth was witnessed in Bancassurance and investment banking related income. The non mark-up income may well have fallen significantly year-on-year, and understandably so, as gain on sale of securities came down crashing - as most banks had cashed out the benefits earlier. HBL has traditionally kept a check on administrative expenses, and has had a cost income ratio to be envious of. But the yearend administrative expenses appear to be on the higher side. That appears to be the only blip in an otherwise exemplary profit and loss statement.
HBL's infection ratio slipped to single digits for the first time in eight years. This speaks volume of the ever improving asset quality and prudence. With economic conditions on the mend, and ever improving company indicators, HBL seems well poised to muster higher profits as the era of record low interest rates may well be behind us.
Performance Snapshot CY15 HBL in CY15 showed how a big balance sheet can be translated into exemplary profit numbers despite tough conditions for the banking industry. Recall that the banking spreads have squeezed significantly of late and effective taxation is also higher after the imposition of super tax and higher tax incidence on dividend income. But the strength driven from the non-core income, mainly gain on sale of securities has proved to be more than sufficient for HBL to help post sizeable profits.
The top line grew modestly in CY15- understandably so as the interest rates have fallen remarkably. But a rapidly growing balance sheet ensured there was growth at the top nonetheless. No marks for guessing, the bulk of mark-up income came from investments in government securities. That the IDR has gone up to as high as 76 percent tells why banks are not too worried about lending aggressively - when even not-so-lucrative yields on government papers are doing the trick.
Investments had gone up by 35 percent as at December end 2015 over December 2014 and advances in absolute terms inched up by just 6 percent for the same period. The ADR stood as low as 39 percent - lowest among similar sized banks. Deposits have not grown briskly, but deposit growth alone has not been HBL's focus of late. The focus is on adding the right mix of deposits and the improved CASA ratio over the years tells how much has HBL improved in this regard.
Provisioning charges for the year were considerably higher, but the overall picture on NPLs is improving and the bank has also bettered the coverage ratio. The infection ratio has come down to 12 percent, while the coverage ratio has improved to a very sound 90 percent. The administrative expenses went significantly up during the year, but the cross selling earnings from bancassurance, brokerage, commission and sale of securities - offered enough to further improve the cost to income ratio.
Future Outlook: Interest rates may well have bottomed out, but a journey up north may not come that soon either. Lower interest rates also pose a challenge and an opportunity at the same time - in form of lower yielding government securities and a chance to start lending aggressively.
Whether or not HBL takes that route is anyone's guess. If one goes solely by numbers, HBL does not seem compelled to alter its asset mix just for the sake of it. But something has to give as the bonanza of PIBs and treasury bills and the resultant gains on sale of the same securities cannot go on forever. With economic activities picking up at home and the fell-good factor about CPEC - HBL would do well to gradually start expanding its advances portfolio.
========================================================================
Habib Bank Limited
========================================================================
Rs (mn) CY13 CY14 CY15 CY16
========================================================================
Markup Earned 98,580 137,416 141,101 141,089
Markup Expenses 42,182 68,833 62,933 59,138
Net Markup Income 56,398 68,583 78,169 81,951
Provisioning / (Reveral) 6,857 1,234 4,508 718
Net Markup Income after provisions 49,541 67,349 73,661 81,234
Non Mark-up / Interest Income 14,783 23,425 36,584 31,062
Operating Revenues 64,324 90,774 110,245 112,296
Non Mark-up / Interest Expenses 30,002 42,524 49,959 55,771
Profit Before Taxation 34,321 48,250 60,286 56,525
Taxation 11,988 16,768 25,185 22,319
Profit After Taxation 22,333 31,483 35,102 34,206
EPS (Rs) 18.30 21.56 23.93 23.23
========================================================================
Source: Company Accounts
==============================================================
Habib Bank Limited
==============================================================
Rs (mn) CY14 CY15 CY16
==============================================================
Investments 922,691 1,270,823 1,344,404
Advances 595,295 637,383 748,466
Deposits 1,524,645 1,634,944 1,885,959
Total Assets 1,695,023 2,035,812 2,310,913
Total Equity 169,595 182,620 196,268
==============================================================
Other Accounts
Provisioning against Advances 66,181 69,179 65,160
NPLs 79,527 76,792 75,446
Saving Deposits 664,856 744,682 847,295
Current Accounts 496,598 582,993 680,377
==============================================================
Source: Company accounts
====================================
Habib Bank Limited
====================================
Indicators CY14 CY15 CY16
====================================
Infection Ratio 12% 11% 9%
Coverage Ratio 83% 90% 91%
Spread Ratio 50% 55% 58%
IDR 61% 78% 71%
ADR 43% 43% 43%
ROA 1.8% 1.7% 1.4%
ROE 20% 20% 18%
CASA 76% 81% 81%
====================================
Source: Company Accounts
Copyright Business Recorder, 2017