Banks are often a reflection of a country’s state of economy. Looking at HBL’s 1HCY23 financial results announced yesterday, would confuse you for a result from another country or another era. The country’s biggest commercial bank HBL recorded its highest quarterly profits – as the half-yearly after-tax profits more than doubled from the same period last year. The bank’s core business, cross-selling, international operations all contributed to the exemplary profit growth.
The balance sheet grew 7 percent over December end 2022 nearing Rs5 trillion – comfortably the largest balance sheet for any bank in the country. The deposit base has exceeded Rs3 trillion – with a modest growth in line with industry wide trend. HBL has managed to increase the domestic deposits by over Rs300 billion - with 90 percent of the growth stemming from cheaper deposits. As a result, the cost of deposits is under control – a luxury in times of peaking interest rates.
The net interest income was a result of a combination of strong volumetric asset base expansion and substantially high interest rates from last year. Advances went down from last year and over December 2022 – as the much-documented struggles of the economy at large led to muted credit appetite from the private sector. Corporate lending remains the biggest borrower segment for HBL and interest rates north of 20 percent do not help generate substantial credit demand. HBL’s personal and agriculture loan growth remained steady, and microfinance lending grew 7 percent. That said, priority lending is not that big a contributor to HBL’s overall advances portfolio. The ADR, as a result slipped to 46 percent – down 500 basis points from December 2022.
An economy in dire straits in Pakistan often means the government ending up borrowing more to run operations, and that clearly shows in the IDR of the banking sector over the years. Investments soared 10 percent or Rs187 billion over December 2022, as HBL continued to entertain (and why should it not?) the sovereign borrower – investing in PIBs and treasury bills. With economic growth projected to remain slow, high fiscal deficit remains almost a certainty – and that usually keeps the banks heavily invested in government papers. More of the same seems to be in store for 2HCY23.
On the non-interest income front, HBL’s fee income continued to lend a big hand as card related fees stayed high – in sync with HBL’s ever-increasing digital footprint. The bank managed to retain its 10 percent market share in the remittance market, whereas significant gains were realized on derecognition of joint venture. Administrative expenses were controlled well, when seen in the light of a high inflation rate – improving the cost to income ratio to 57.5 percent. HBL continues to provide adequately with 86 percent specific coverage against NPLs. The infection ratio has not worsened significantly (yet) – staying 5.5 percent at June end 2023. The second half could pose new challenges as the IMF program demands strict actions that will ensure more inflation and a policy rate environment that supports a real positive interest rate. Should HBL be worried about profitability in the near-term? Looking at the numbers – that’s a big no.
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