HBL playing it safe

Higher return being offered by government securities has been providing an opportunity to banks to make a mint while staying away from risky lending. Following this approach, HBL, one of the largest commercial banks in Pakistan, managed to lift its bottom-line by around 27 percent to Rs15.6 billion in 2010. The lender declared Rs 6.5 per share in cash dividends and 10 percent bonus shares.
Although, deposits grew a percentage point less than money supply adjusted for the hike in currency-in-circulation in the economy, the banks wide branch network helped it fetch more low cost deposits, such as saving and current accounts, as evident from around 3 percentage point improvement in HBLs CASA ratio. Similarly, mark-up expense as a percentage of deposits fell to 4.7 percent from 5.1 percent in 2009, hence cost of funds reduced marginally.
"The change in HBLs deposit mix is in line with the banks overall strategy of strengthening its low cost deposit base," according to the banks sources.
HBLs net advances remained static, pushing the ADR down to 60.3 percent in 2010 down from 66.1 percent in the pervious year. In keeping with the general market trend, HBL managed to increase its investments to Rs245 billion from Rs209 billion a year earlier. At the same time, HBLs investment-to-deposit ratio grew by 2 percentage points to 34 percent in 2010.
Cashing-in on rising interest rates, HBL recorded improvement in markup income. Non-markup income improved on the back of growth in income on investment and dealing in foreign currencies.
In line with growth in NPLs that totalled around Rs46 billion in 2010 as against Rs 42.31 billion, the banks infection ratio advanced by around 78 bps to 9.7 percent. However, growth in provisioning lifted the coverage ratio to 82 percent in 2010 as against 74 percent last year. Provisioning increased by 23 percent to Rs38 billion.
In the face of higher inflationary pressures, which averaged around 14 percent 2010, HBL managed to keep its operating expenses in check which grew by 7 percent. According to a note published by AKD securities Ltd, HBL managed to cap operating cost likely due to completion of VSS scheme.
The fact that government has been tilting its borrowing portfolio away from central banks and focussing more on treasury issues, investment to deposit ratios of commercial banks are likely to increase further in the quarter ahead.

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HBL CY10 - P & L

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Rs(mn)                                 2010      2009    % chg

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Markup Earned                        80,000    74,751     7.0%

Markup Expensed                     -34,090   -33,089     3.0%

Net Markup Income                    45,909    41,663    10.2%

Provisioning                         -8,158    -9,985   -18.3%

Net Markup income after provisions   37,752    31,678    19.2%

Other income                         11,050     9,943    11.1%

Operating revenues                   56,959    51,605    10.4%

Other expenses                      -23,744   -22,135     7.3%

Profit before taxation               22,057    19,486    13.2%

Profit after taxation                15,613    12,299    26.9%

EPS (Rs)                              15.58     12.28

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Source: Company Accounts

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