HBL banks on investment income

The countrys leading commercial bank, HBL, became the first Pakistani bank to cross a trillion rupee mark in deposits. HBLs deposits witnessed a stupendous growth of 16 percent over the year ended CY11, way above its peer MCB, the deposits of which grew by eight percent over the same period. Habib Bank Limited ended up earning 18 percent more than what it did during the same period last year, primarily driven by the strong core business revenue growth. To go with that, there was an interim cash dividend of Rs3.5/share for the shareholders. HBLs mark-up income grew by a healthy 18 percent year-on-year, 47 percent of which constitutes the mark-up on advances. This is in sharp contrast to the revenue mix during the corresponding period last year, which was heavily tilted towards the contribution from mark-up on advances, which were 60 percent of total mark-up income. Conversely, the share of mark-up income on investments has steadily grown from 35 percent previous year to 41 percent during 1HCY12, testament to the fact that the asset composition has drastically changed in the recent past. Such has been the growth in investments that they have now out shown advances in the asset composition. HBLs investments grew by a massive 64 percent when compared to the half year ended June 2011 and 34 percent in comparison to the end of CY11. On the other hand, advances grew by a meager five and seven percent when compared to the similar periods, highlighting the banks are more than happy to be lending to the government than to the private sector, and also the lack of demand from the private sector. Bulk of the increase in investments is attributable to treasury bills investments, constituting 70 percent of the total investments. The gross spread ratio declined significantly from 58.2 percent last year to 53.4 percent in the period under discussion. This can be attributed to the recent requirement from the SBP imposed on the banks to at least offer six percent on deposits, a 100 basis points increase from the previous benchmark. Moreover, HBLs CASA ratio at 68 percent is significantly lower than some of the other major banks, which partly explains the lower spread ratio. Going forward, the spreads may squeeze further after the recent 150 bps interest rate cut. The mark-up income on advances and investments is likely to face downward pressure, whereas, the mark-up expensed on the huge deposits will continue to be paid at high rates as mandated by the SBP, hence, lower spreads.

==================================================================
HABIB BANK LIMITED
==================================================================
(Rs mn)                                 1HCY12     1HCY11      chg
==================================================================
Mark-up Earned                          54,564     46,106      18%
Mark-up Expensed                       (25,453)   (19,272)     32%
Net Markup Income                       29,111     26,835       8%
Provisioning                            (2,189)    (4,750)    -54%
Net Mark-up income after provisions     26,923     22,085      22%
Other income                             7,789      7,613       2%
Operating revenues                      36,900     34,448       7%
Other expenses                         (15,551)   (14,246)      9%
Profit before taxation                  19,161     15,452      24%
Profit after taxation                   11,859     10,010      18%
EPS (Rs)                                  9.68       8.17
------------------------------------------------------------------
Source: Company Accounts
==================================================================