The corporate results season has started. Largely in line with market expectations, HBL, Pakistans second-largest lender, has revealed first-quarter profits of Rs4.7 billion, up from Rs3.6 billion a year earlier.
Helped by an improvement in investment income and CASA ratio, the banks net mark-up income jumped by around 23 percent year-on-year.
Having the second largest deposit base and leveraging the largest branch network in the country, HBL mainly focussed on reducing its cost of deposits.
The number speaks for itself; the deposit base slightly reduced to Rs 713 billion at the end of the first quarter as against Rs 721 billion at the end of CY10, largely due to a decline in its fixed deposit pool by around 11 percent to Rs 166 billion.
At the same time, the cumulative deposit in the savings and current account improved by around 3 percent to Rs 536 billion, lifting its CASA ratio by around 3 percentage points to around 75 percent in just three months.
In dealing with advances, the bank preferred to err on the side of caution by keeping advances virtually stagnant at last years level of around Rs 436 billion to improve the quality of assets. The flat advances are not much of a concern since the cumulative advances for all commercial banks remained nearly unchanged during the past three months.
To streamline and stabilise mark-up income, the bank stretched its investment portfolio by a whopping 11 percent to Rs 272 billion, as treasury securities are compensating investors with handsome risk-free returns as opposed to the risk premium paid by risky loans portfolio. This helped lift the banks (IDR) investment to deposit ratio to 38 percent, at the end of the first-quarter from around 34 percent, at the end of CY10.
The banks profit took cuts from higher net provisions against non-performing loans and advances, which surged to Rs 2.4 billion as against Rs 1.4 billion same quarter last year.
However, HBL has opened the Pandoras Box of the banking industry, disclosing growth in fresh (substandard) NPLs.
The growth in HBLs non-performing loans - that surged by around Rs5.26 billion to a total of Rs 52 billion in the space of three months - is an alarming signal for other banks. Moreover, behind the looming growth are rising bad loans in the substandard category, portraying overall weak economic activity in the country.
As fresh NPLs and delay in payments from the government sector are the culprits behind growth in total NPLs, the magnitude of growth in total provisions was slightly lower than the surge in total NPLs, the banks coverage ratio deteriorated to around 79 percent at the end of 31st March as against 82 percent at December-end.
Firm growth in income from dealing in foreign currencies contributed to a rise in non mark-up income. While around 13 percent growth in administrative expenses lifted non mark-up expenses.
As the bank has developed a fairly large presence across the country, it has increased its focus on financial inclusion. However, to catch the next fad and new growth avenues, the bank needs to speed up its effort in m-banking segment.
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HBL P&L
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(Rs mn) 1QCY11 1QCY10 chg
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Markup Earned 22,157 19,157 16%
Markup Expensed (9,162) (8,551) 7%
Net Markup Income 12,995 10,606 23%
Provisioning (2,383) (1,376) 73%
Net Markup income after provisions 10,612 9,230 15%
Other income 3,106 2,654 17%
Operating revenues 16,101 13,259 21%
Other expenses (6,396) (5,919) 8%
Profit before taxation 7,322 5,964 23%
Profit after taxation 4,701 3,603 30%
EPS (Rs) 4.69 3.60
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Source: Company Accounts
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