HBL, Pakistan’s largest commercial bank, posted another record quarterly pretax profit at Rs16.6 billion for 1QCY25 – up 22 percent. After tax profit growth was contained at 11 percent year-on-year, as effective tax rate was up to 55 percent for the period, up 5 percentage points from a year ago.
Exemplary administrative cost control, strong non-funded income growth, reduction in provisioning charges and surge in markup income all contributed towards profitability growth – despite many challenges facing the industry.
The story of the quarter across industry revolves the swift asset mix re composition. The advances bonanza was never going to last beyond the end of 4Q as banks rushed to avoid higher penal tax. Things are back to usual almost immediately, with the ADR dropping 10 percentage points over December 2024 to 44 percent, having gained nearly 15 quarter-on-quarter in the previous quarter.
Advances portfolio in absolute terms was down Rs397 billion over December 2024 – wiping most of the Rs484 billion gains of 4QCY24. The 17 percent quarter-on-quarter in the loan book size is by far the sharpest dip recorded in recent history. The retreat in advances is not unique to HBL—it reflects an industry-wide trend.
Total advances for the banking sector declined by 15 percent over December 2024, settling at Rs15 trillion. Notably, NBFIs, despite making up just 8 percent of the total loan portfolio, accounted for nearly one-third of the Rs2.4 trillion quarterly drop, largely due to the temporary lending spike during the ADR-driven race last quarter.
On the liabilities front, deposits inched up a modest 2 percent over December 2024 at Rs4.4 trillion, slightly below the industry-wide deposit growth of 4 percent during the period. Domestic deposit growth was led by a massive Rs127 billion increase in current account, further improving the CASA ratio. The current account to total deposit mix has improved further from 34 percent in December 2024 to 40 percent by the end of 1QCY25.
Despite a significant monetary easing of close to 1000 basis points during the year, the net-interest income displayed double-digit growth, reflective of balance sheet expansion and cost of deposit optimization.
Non-markup income increased steadily driven by treasury business and fee franchise commission. HBL’s cost optimizing initiatives kept the administrative expense growth contained at just 7 percent year-on-year, leading to a much-improved cost-to-income ratio of 55.6 percent – up 2 percentage points year-on-year.
With the agriculture and large scale manufacturing still struggling – even a significant reversal in monetary policy is not likely to lead to a big change in private sector credit appetite. Consumer loans could still pick up as rates have receded from the historic highs, and auto financing could well be the catalyst.
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