Pakistan’s largest commercial bank, HBL started 2024 from where it left off in 2023. Another record quarterly profit with another Rs4/share dividend was announced. The pre-tax profits soared a healthy 40 percent year-on-year. To think this is happening at a time when the country isn’t completely out of the woods in terms of macroeconomic challenges, and the banking sector was supposed to be feeling the heat in terms of delinquencies – is truly remarkable.
For 1QCY24 – non-markup income had a fair share of contribution in propping up the bottom line, but the playbook remains largely the same. It helps when you are as big as HBL. The balance sheet at Rs5.5 trillion stayed largely unchanged from December end of 2023 and up 11 percent from a year ago. Expectedly, the balance sheet expansion over last year is all rooted in an increase in investments – primarily government securities.
The investment-to-deposit ratio at 60 percent for 1QCY24 was close to that of last year – and slightly lower from December 2023. The credit appetite from the private sector continues to be non-existent – as the advances portfolio dipped 2 percent from a year ago, and nearly 6 percent from December 2023 end. The corporate, commercial, and investment banking segment saw the biggest drop in advances from Rs847 billion as of December end 2023 to Rs793 billion. Consumer, SME, and agriculture lending accounts for the second highest contribution to advances, but also went lower versus December 2023.
The advances to deposits ratio (ADR) barely touched 40 percent – down 9 percentage points from the same period last year – and the lowest in a very long time.It is common practice among big banks to entertain genuine credit needs from the private sector, and the incidences of refusing loans to the commercial and corporate sectors are very rare – which indicates the slowdown in demand is real. Whether or not HBL would have strived to be more aggressive on other fronts is guesswork at best – but in a struggling economy grappling with record inflation and record high-interest rates –expecting credit appetite from SMEs, personal or agriculture sector would also be a stretch.
On the liabilities front, deposits at Rs4.4 trillion were up 21 percent from a year ago– led by low-cost and no-cost savings and current accounts. The CASA ratio was a slight improvement from last year at 81 percent, helping reduce the cost of deposits marginally from a year ago.
Non-markup income led the biggest hand, more than doubling year-on-year, with fee and commission income leading the way with an impressive 27 percent year-on-year growth. The card business was the largest contributor to fee and commission income, followed by trade commission and merchant discount fees. Foreign exchange income and income from derivatives improved significantly from last year – making a net positive impact of almost Rs12 billion. The cost-to-income ratio improved by 360 basis points from the same period last year to 57.2 percent. The NPLs inched up a little from December 2023 – but there are no alarm bells yet, as the infection ratio stays around 6 percent – and is adequately provided for.
The interest rate cycle may finally be ready for a reversal, and the upcoming policy on Monday may well start the reversal journey. It may not lead to an immediate change in the advanced portfolio, as the large-scale sector is still struggling to post meaningful growth. The government’s fiscal performance will determine the makeup of the asset portfolio for the rest of 2024.
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