Pakistan’s largest commercial bank HBL Bank Limited (HBL) announced its 9MCY18 financial results earlier, posting a massive jump of nearly six times in after-tax profits. The reasons were plenty, from the one-off impact of the New York operations penalty to much reduced effective tax rate. This time though, it was another one-off item that led to lower pre-tax profits, as banks had to make allowance for pensions in the light of Supreme Court’s orders.
On the business end of things, HBL performed pretty well, starting with the top-line. The mark-up income increased on the back of higher interest rates during the period, as compared to last year. The asset mix saw a shift for the better, as investments went down by 13 percent over December 2017, and advances went up by the same magnitude over December 2017.
That said, investments continue to take the lion’s share in the asset mix with the IDR of 58 percent, which went down from 68 percent in December 2017. On the other hand, the ADR improved from near 43 percent in December 2017 to 46.6 percent by the end of September 2018.
On the liabilities front, the growth was steady without being exuberant, for all the right reasons. For one, HBL’s deposit base of over Rs2 trillion is already by far the largest in the entire sector. Secondly, the bank’s strategy of late has been to focus on inviting the right kind of deposits, aimed at increasing the CASA ratio, which has continued to improve every other quarter.
The NPLs have also come down slightly, and the infection ratio stayed in single digits, which are adequately provided for (coverage ratio: 85 percent). The bank’s capital adequacy ratio saw a swift recovery soon after the New York operations’ episode, and sit at comfortable and adequate levels. The bank had earlier hinted at taking measures to improve capital ratios through balance sheet optimization, and it seems well on course.
The contribution from non-core income has been significantly lower this year, largely owed to sub par capital market performance. The administrative expenses too, appear to be on the higher side, and HBL would do well to keep a check on them, to seek a much improved cost to income ratio. The interest rates are high, credit demand in select sectors should pick up, especially if the Naya Pakistan Housing Scheme goes as per plan. This provided HBL with ample opportunities to leverage its strong balance sheet. Things are looking up for the banking sector.
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