Spreads may well be low, conditions may not be conducive for private sector lending, the regulator may well be tightening requirements on deposit returns – but all of it will not matter if you are a bank as big as HBL. One single variable may be good enough to overcome all these issues, as a risk free, sovereign willing borrower was there throughout the year to borrow at lucrative rates. What would a bank do? Just invest in the government papers and feast on the meal and this is what HBL like many of its peers did in CY14.
The top line growth in double digits was good enough to carry till the bottom, helping HBL register massive profit growth. The ever-present contribution from non-core income did its part too, highlighting the bank’s continuous efforts to build on cross selling. But it was really the mark-up income that made the real difference and there are no marks for guessing the bulk of it was based on mark-up earned on investments.
HBL’s asset composition has now for quite some time been tilted in favour of investments over advances, with an ADR of nearly 40 percent as of September 30, 2014. The mark-up composition as of latest available numbers was well in line with asset composition, with 60 percent derived from investments. This in itself tells the tale of the sector, where government papers are yielding returns as good as what risky private sector assets are yielding.
The shift from treasury bills to PIBs also aided the top line, despite the investment portfolio increasing by just 2 percent over December 2013. The deposit growth too remained muted, partly because HBL had gone aggressive on deposit mobilisation in the yesteryears. The CASA ratio also kept improving. NPLs continued to go down and were adequately provided for. There was hardly a hole you would find in HBL’s CY14 performance.
Government’s borrowing needs seem far from over, but with the rates coming down; government papers will certainly not be as lucrative. Seeing a major shift in asset composition will all come down to HBL’s desperation. From what it appears, there might be an uptick in private sector lending, but do not be surprised if HBL with all its sheer size and weight sits back and enjoy whatever little comes its way.
There was delight for the shareholders too who were treated with a final cash dividend of Rs5.5/share, taking the full year DPS to Rs12. Government would fetch around Rs3.3 billion in lieu of dividends from HBL, after disinvestment. This is exactly why disinvesting in such institutions, did not make a good reading. And this further strengthens our view that privatisation should be more about changing management control than merely disinvestments. Yes, the flows have improved of late, but it will stop an ensured revenue stream in the times to come. Here is hoping, less of this happens from now on.
Habib Bank Limited (Consolidated P&L)


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Rs (mn) CY14 CY13 chg
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Markup earned 137,842 120,605 14%
Markup expensed 68,756 65,207 5%
Net Markup Income 69,087 55,397 25%
Provisioning/(Reversal) 1,493 1,400 7%
Net Markup Income
after provisions 67,593 53,998 25%
Non Mark-up/Interest Income 23,512 18,941 24%
Operating revenues 91,105 72,939 25%
Non Mark-up/Interest Expenses 42,590 36,806 16%
PBT 48,515 36,133 34%
Taxation 16,695 13,106 27%
PAT 31,820 23,027 38%
EPS (Rs) 21.63 15.59
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Source: KSE Notice

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