Pakistan's largest commercial bank announced its full year results for 2017, accompanied with a final cash dividend of rs7/share. The bank's topline grew modestly year-on-year, which could still be considered a decent effort given low interest rates and ever-thinning earning spreads on assets. All else was well in control, but the after-tax profits slid by a massive 76 percent year-on-year. That is all because of the elephant in the room that was the bank's New York operations and the settlement payment that it made.
Recall that HBL ended up settling the New York operations dispute paying a hefty sum of $225 million to the Ney York State Department of Financial Service. This alone proved enough to wipe off whatever gains were made on the topline front. Faced with the situation, the bank did not declare interim dividend in the previous quarter ending September 2017, and announced just Re1/share as final dividend, in an attempt to maintain good capital adequacy levels.
The dent on HBL's CAR has been swiftly recovered - with the CAR increasing to a comfortable 15.9 percent as at December 2017, versus 10.6 percent as at September 2017. The bank in its press release has maintained that an active plan has been pursued to improve capital ratios via balance sheet optimization, and the end results testify that.
HBL has done a more than decent job expanding its asset base, which came at the back of a strong 14 percent growth in advances over December 2016. The ADR has now inched up in the 40s, from 39.7 percent last year. That said, investments continue to form the bulk of asset mix at Rs1374 billion versus advances of Rs851 billion.
But the growth in investments has died down, increasing by just 2 percent over December 2016, as the yields on government securities were not as lucrative as yesteryears. Three-fifth of the interest income is still generated from investments, which goes on to show investments still continue to be the preferred parking lot for excess liquidity.
The deposit growth was checked at 6 percent over December 2016. HBL's focus of late has been around low cost current account deposits. HBL's domestic CASA ratio further improved to 86 percent, as the bank added a massive Rs172 billion in CASA deposits. This enabled HBL to somewhat mitigate the impact of low spreads.
HBL has a clean loan book, with low infection ratio and decent enough provisioning. The administrative costs may well have been on the higher side and HBL would do well to keep a lid on them in the future. The assets and liabilities are both growing in the right direction, and save for the New York operations blip, things look bright for HBL.
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