Pakistans largest commercial bank in terms of deposits, announced its CY12 full year financial results yesterday, showing a flat bottom line. The results expected well below the consensus estimates as the 4QCY12 provisioning charges exceed the expectations of many.
The banks asset growth has been exemplary, evident by a strong 41 percent growth in total assets from last year. The asset composition, however, went hugely in favour of investments in government securities as the growth in advances remained subdued.
The mark-up earned during the period registered an impressive 18.5 percent year-on-year growth, but that failed to translate into substantial NII, as the spreads remained thin throughout the period. The composition of the mark-up income is a tell-tale sign of how things have been going in the banking sector of late with mark-up on investments surpassing those on advances.
The advances during the period grew by a meagre nine percent, whereas the investment, primarily in government papers, nearly doubled in the same period. There is now a yawning gap of nearly Rs300 billion between advances and investments, the investments having overtaken advances by that margin. The picture at the end of CY11 was quite different, with advances higher than investments. Resultantly, the ADR has worsened further from 49 percent at the end of CY11 to 41 percent currently.
Credit where due and HBL managers deserve a pat on the back as the Bank registered a stupendous 30 percent rise in deposits during the period - well above the industry average. SBPs requirement of minimum six percent return on saving deposits played its role in shrinking the spreads, coupled with the massive decline in interest rates - hence the decline in gross spread ratio from 57 percent last year to 49 percent in CY12.
All else under the top line were footnotes with business as usual. Going forward, a lot will depend on how the interest rates take shape. A sudden shift in banks strategy to start lending aggressively to the private sector seems
distant at the moment. But with such low spreads, something will have to give.
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