Pakistans largest commercial bank, HBL, announced its CY16 financial results yesterday, posting a minor year-on-year dip of 3 percent in after-tax profits. Another way to read this statement is that HBL did exceptionally well to nearly maintain profits at yesteryears level despite a challenging operating environment. HBL doled out Rs14/share as cash dividend, at par with CY15.
The real deal is the balance sheet, and that is where HBL seems to have grown and improved significantly. HBL now boasts of a balance sheet in excess of a mammoth Rs2.5 trillion, a 14 percent growth over 2015.
HBLs liability managers must be expecting decent bonuses for their good work in CY16 as the deposit base expanded by a massive 15 percent well over industry average. Such growth in a year is a serious effort, given HBLs deposit size which is fast nearing Rs2 trillion. Even better is the fact that bulk of this increase was seen in current accounts, which grew by 16 percent over December 2015 and now account for a sizeable 37 percent of total deposits. HBLs CASA remained strong, evident from a 5 percent year-on-year increase in net mark-up income, despite a flattish topline. The cost of deposits has continued to go down, quarter after quarter.
On the asset front, there was considerable growth seen in advances, after a long time, which grew 17 percent over December 2015. In absolute terms, HBL added more advances than investments to its asset portfolio, which is a welcome change. The bank puts it down to improved economic climate, as corporate, SME, and consumer lending segments witnessed growth.
That said, it will take some doing for advances to surpass investments in government securities, as the key asset category. HBLs IDR still hovers over 70 percent, while the ADR is barely touching 40 percent. But if recent trends are any guide, advances should continue to outpace investments in the near term. That would also make business sense, as the yields on PIBs and treasury bills are nowhere near as lucrative as they once were.
HBLs non-core income continues to ably support the bottomline, as record growth was witnessed in bancassurance and investment banking related income. The non mark-up income may well have fallen significantly year-on-year, and understandably so, as gain on sale of securities came down crashing as most banks had cashed out the benefits earlier. HBL has traditionally kept a check on administrative expenses, and has had a cost income ratio to be envious of. But the yearend administrative expenses appear to be on the higher side. That appears to be the only blip in an otherwise exemplary profit and loss statement.
HBLs infection ratio slipped to single digits for the first time in eight years. which speaks volume of the ever improving asset quality and prudence. With economic conditions on the mend, and ever improving company indicators, HBL seems well poised to muster higher profits as the era of record low interest rates may well be behind us.
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