HBL: Proceeding with caution

Corporate results are pouring in, and, contrary to market expectations, the scorecard is mostly better than expected. Habib Bank Limited (HBL), however, bucked this trend and posted a marginally lower-than-expected nine-month results on Tuesday.
HBLs bottom line advanced by 9.6 percent year-on-year on the back of cautious lending, and income derived from investments in government securities and capital gains from investments. EPS for the first three quarters stood at Rs11.27; no dividend or bonus shares were announced.
Though deposit growth was marginal at the largest private lender, the deposit mix tilted away from high-cost fixed assets, declining 540 basis points in the period under review to 23.8 percent.
Net advances for the bank clawed back 4.1 percent in the period under review. Yet, when HBLs Rs43 billion investment in TFCs advance for financing the power sectors circular debt is added back in, ADR stands at 69.2 percent, which is considerably higher than the industry average of 62.7 percent.
Even so, over the last nine months, advances in relation to deposits have fallen by 3.5 percent, which speaks to the cautious approach of both credit and risk managers at the bank.
In the weak economic environment Pakistan finds itself in, investments in government securities have almost become the most important earning asset for the banks treasuries. In a contrarian move, HBL reduced investments by 4 percent.
Still, the ratio of investments-to-deposits remained steady at 44 percent - inching up 2 bps in the nine months under review
The nearly 10 percentage point increase in the coverage ratio, reaching up to 80 percent, allowed HBL to decrease provisions for bad loans by 4 percent year-on-year, even though NPLs grew by 6 percent in the first nine months of the calendar year. The banks gross infection ratio was also up 74 bps to 9.1 percent in the same period.
Since privatisation, HBL has steadily reduced its head count. Market sources suggest its employee-to-branch ratio is now one of the lowest amongst its peers. Such measures have borne fruit for the bank as the growth of operating expenditures was curbed at 10.9 percent in a high inflation environment.
With the aftermath of the floods largely unincorporated in the results, risks of rising defaults loom. Credit managers are likely to proceed with caution in the coming quarters.