Bank Al Habib – promising first half

Bank Al Habib Limited (BAHL) has not put a foot wrong in the past few quarters. Second quarter of 2021 was continuation of the rather smooth journey, as the bank further consolidates its position, strengthening its balance sheet. Pre-tax profit growth of 19 percent year-on-year is largely on the back of massive reversal in provisioning charges, and substantial increase in non-funded income.

The interest rate scenario is much changed that it was in 1HCY21, especially in 1QCY21 before Covid had hit Pakistan, leading the central bank to aggressively reduce the policy rates. A drop in markup earned is therefore, understandable. That said, BAHL has continued to grow the balance sheet at a swift pace of 22 percent over December 2020.

The investment portfolio saw the biggest jump of nearly 29 percent over December 2020, taking the investment to deposit ratio to near 80 percent. The trend is in line with industrywide practice as investments have been the favored asset class for the banking sector for quite some while. The blend of PIBs and treasury bills, that keep changing positions and tenor management – stood just shy of Rs1 trillion at the end of 1HCY21.

On the advances front, the portfolio crossed Rs600 billion, registering a healthy 18 percent growth over December 2020. Bulk of the growth came in the second quarter, as advances had stood close to Rs530 billion by the end of 1QCY21. BAHL’s advances to deposit ratio crossed 50 percent, which is comfortably higher than the big five banks. Increased economic activity has surely started to reflect on advances growth across the industry, and BAHL has usually been ahead of the curve in terms of ADR.

The deposit base grew in double digits (higher than industry growth) over December 2020, crossing Rs1220 billion as at June end 2021. Details of deposits are yet to arrive, but BAHL’s deposit strategy has been firmly focused around low-cost deposits, as the CASA ratio had improved to over 66 percent by the end of 1QCY21. A look at the markup expensed during the half year also indicates the cost of deposit continues to improve, with improved CASA.

BAHL made good strides on the non-core income front, despite challenges around free online transactions. Of course, the low base from 2QCY20 as the country went into lockdown, has its impact as well. The biggest difference was made by a reversal in provisioning charges, that contributed over Rs2 billion to the bottom-line. The loan book continues to be exceptionally clean and adequately provided for at an NPL ratio of 1 percent, with provision at 189 percent. Pakistan seems to be gradually taking the growth path, and that should give rise to more opportunities to lend, whereas also open more avenues for non-core income, going forward. The other half looks as promising as the first one for BAHL.