Record-high interest rates crippling private sector credit demand? Check. All-time high consumer price index eroding purchasing power like never before? Check. GDP growth in negative territory and large-scale industrial manufacturing in literal recession? Check. It would then be fair to expect the profitability of commercial banks to take a hit. More so, when credit off-take has been negative, let alone stagnated.
Only the banks in Pakistan, especially the big ones, seem to thrive in times when the chips are down on a macro scale. HBL, the largest commercial bank by some distance, raked in another record quarterly profit. Not the first time in recent memory. Of course, with size comes the might and muscle to navigate in tough times, but Pakistan’s macroeconomic woes often mean the government is on an endless borrowing spree to fund the deficit. It tastes even sweeter when the interest rate environment is also favorable –yielding high returns.
HBL’s Investment-to-Deposit Ratio (IDR) as of September end 2023, stood at 63 percent. The investments portfolio grew a massive Rs550 billion over December 2022 –reaching Rs2.5 trillion. The bulk of the additions were in short-term papers, as treasury bills took precedence over PIBs. Advances, on the other hand, remained virtually stagnant over December 2022. The much-talked-about ADR is down to 45 percent – and it won’t be back to nearly 50 percent before the end of the calendar year – where banks try to balance the act in order to avoid extra tax on missing the mark. Long story short, sovereign papers yielding lucrative returns will pretty much be the flavored parking spot in the foreseeable future.
On the liabilities front, the growth was steady at nearly 15 percent over December 2023. The deposit base is now touching a colossal Rs4 trillion – by far the biggest deposit base of any bank in the country. Of the Rs333 billion increase in domestic currency deposits over December 2022 – 87 percent has been recorded in non-remunerative and low-remunerative current and saving accounts. The cost of deposits stays well under control, as HBL continues to steadily improve the CASA ratio.
To top it off, HBL marched on with exemplary growth in fee, commission, consumer finance, cash management, remittance, and card businesses. The bank witnessed substantial growth in card usage during the year (both debit and credit) – with a share of one-fifth in all debt card transaction value and one-third of credit cards. Administrative expenses soared, largely in line with inflationary trends. The cost-to-income ratio during 9MCY23 improved by 290 basis year-on-year points to 57 percent.
HBL’s infection ratio stayed in low single-digits, improving to 5 percent, more than adequately provided for with the coverage exceeding 100 percent. All soundness indicators stay sound and healthy – with a strong improvement in the all-important CAR to 16.1 percent. The delinquencies arising from the lows of FY23, may or may not arise soon, but HBL seems to have the bases well covered to sail smoothly. The government’s borrowing appetite is not going anywhere anytime soon – and that should keep HBL and the likes raking in record profits – quarter after quarter.