The world may well still be trying to come to terms with the pandemic outbreak, but banks in Pakistan have shown resilience at another level. Having weathered the rather tough corona quarter in 2QCY20, 3QCY20 was always going to be better for banks, as Pakistan opened up the economy earlier and the economic activities were back to near normal. Habib Metropolitan Bank’s 9MCY20 financial results prove just that – as the after-tax profits swelled by an impressive 65 percent year-on-year.
The topline grew admirably, mainly on the back of volumetric expansion in earning assets. The interest rates were considerably lower year-on-year, but a timely reprofiling of earning assets and expansion on both advances and investment portfolio yielded a mammoth 51 percent year-on-year growth in net markup income.
HMB reported an Investment to Deposit Ratio in excess of 80 percent as at September end 2020. The investment portfolio increased by 24 percent over December 2019 at Rs 5546 billion. Effective tenor management in the light of the new interest rate realities means HMB has also altered its investment portfolio increasingly towards longer term government securities.
HMB also expanded the advances portfolio by 7 percent over December 2019, as the economic activities dipped in the wake of the pandemic. The substantial decline in interest rate did not necessarily lead to a big appetite for private sector loans across the industry, as the businesses struggled with the impact of the coronavirus.
With things seemingly under control, and if the second wave is not as severe as the first one, there should be an uptick in the advances going forward, especially as demand comes back to normal and industrial activity seems to be peaking. This is expected to once again alter the asset mix in the industry, and one might see the ADRs improve – and HMB would also want to increase the ADR from 43 percent to in excess of 50 percent, over the next few quarters.
On the liabilities front, the deposit growth at 7 percent over December 2019 was rather muted but largely in line with peer sized banks. Most importantly, the current account deposits grew by an impressive 20 percent during the period, further strengthening the CASA ratio. That said, HMB still has a long way to go in terms of matching the CAS ratio with the bigger sized banks, but the direction of growth is promising and the bank seems to be adding the deposits in the right direction, quarter after quarter.
The non-funded income continues to be a major supporting arm to the bottomline growth, as primarily aided by significant growth in foreign exchange income, the non-markup income registered a double-digit growth. Having slightly stuttered in the corona quarter, the fee and commission income is back to the usual, as the economic activities have visibly picked up.
HMB, in line with industrywide practice, opted for aggressive provisioning to combat the potential impact of Covid-19. The administrative expenses grew largely in line with inflation, and the loan book remains adequately provided for. Things look up for the bank as economic and trade activities are gradually returning to normalcy.
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