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The managers at Habib Metropolitan Bank (KSE: HMB) must be happy at the bank’s financial performance in first-half ended June 30, 2014. The mid-sized bank has recorded healthy top line and bottom line growth during the period, despite a few underperforming areas.
To start with, a 23 percent expansion in mark-up/interest income is symptomatic of gains accruing from much-higher investments in T-bills and the PIBs relative to the same period of last year. Detailed accounts are not available yet, but previous accounts suggest that it is the higher investments at work here, more than the advances-driven income.
Previous accounts show that HMB’s IDR had increased to 85 percent by March end, compared to 58 percent seen last December end. In the same period, its ADR had descended by eight percentage points to 44 percent. On both counts-–sharp increase in IDR and noticeable decline in ADR-–the banks stands out among its peer group in that period.
Higher core expenses weighed down the growth in net mark-up income to a still-decent 21 percent. A seven percent decline in provisions for bad debts helped perk up the post-provisioning net mark-up/interest income. But, that’s where the gains start to slip away.
During 1H CY14, HMB’s non-mark-up/non-interest income declined by five percent year on year. This setback is on account of lower dividend income and smaller net gains on securities’ redemption. If it were not for higher inflows in transactional incomes like fee, commission and brokerage income and net income from dealing in foreign currencies, this income head would have further slumped.
HMB had to contend also with a 14 percent year-on-year increase in its non-mark-up/non-interest expense account. That is primarily because there was a 15.3 percent yearly increase in administrative expenses, which reached Rs3.62 billion for the half year.
Despite a few slippages, HMB closed the first half with a solid 18 percent growth in its after-tax profits. The combination of risk-averse lending and aggressive investment strategy is paying off for now. But moving on, the bank will do well to rein in its cost of funds and administrative expenses, attract more low-cost deposits, and gradually expand its loan portfolio to productive sectors.


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HABIB METROPOLITAN BANK LIMITED
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Rs (mn) 1HCY14 1HCY13 Chg
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Markup/return/interest earned 15,393 12,509 23%
Markup/return/interest expensed 10,268 8,281 24%
Net markup income 5,125 4,228 21%
Provisioning / (Reversal) 959 1,035 -7%
Net markup income after provisions 4,167 3,193 30.50%
Non mark-up / Non-interest income 2,572 2,719 -5%
Operating revenues 6,739 5,912 14%
Non mark-up / interest expenses 3,678 3,227 14%
Profit before taxation 3,061 2,685 14%
Taxation 957 904 6%
Profit after taxation 2,104 1,781 18%
EPS - Rs 2.01 1.7
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Source: KSE notice
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