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Having had a slightly challenging 2QCY19, in terms of profitability, the country’s largest commercial bank, HBL staged a resounding comeback in the third quarter. The pretax profits for 9MCY19, increased by 3 percent year-on-year, on the back of sizeable income growth. Better still, the 3QCY19 profit growth was stellar – which more than doubled to over Rs8 billion, without a single blot on the profit and loss statement for the quarter.

The balance sheet has continued to grow, as the advances portfolio grew by 8 percent over December 2018, to Rs1.38 trillion. Lending in the real economy has been a hallmark of HBL, and the commitment was seen in 3QCY19 as well, as the ADR rose to 54.4 percent, as at September end 2019. The top line growth reflects the significantly higher interest rates during the period, over the same period last year. With the interest rates believed to have peaked, a change in asset allocation strategy may just be around the corner.

Habib Bank Limited
Rs (mn) 9MCY19 9MCY18 chg
Markup Earned 182,631 117,074 56%
Markup Expensed 108,573 56,963 91%
Net Markup Income 74,058 60,112 23%
Non Mark-up / Interest Income 15,777 16,496 -4%
Total income 89,835 76,608 17%
Non Mark-up / Interest Expenses 69,767 57,063 22%
Provisioning/(Reversal) 1,783 1,863 -4%
Extraordinary item - -
Profit Before Taxation 18,285 17,682 3%
Taxation 9,461 7,771 22%
Profit After Taxation 8,825 9,910 -11%
EPS (Rs) 5.89 6.57  
Source: PSX Notice    

On the liabilities front, the growth was decent, without being exceptional, which is understandable in a slowing down economy. The deposit base still managed to expand by 7 percent over December 2018 to over Rs2.2 trillion, which is comfortably the largest deposit size in the banking sphere of Pakistan. Despite a considerable rise in interest rates, the cost of deposits was still kept in check, clearly visible by improvement in net interest margins.

The bank’s CASA ratio further improved to 86 percent, as the bulk of deposit growth revolved around low cost current and saving deposits. An improved CASA holds significant value, especially in times as testing as the current ones, where the pressure on noncore expenses and income has increased.

The fee and commission income remained strong even in the third quarter, increasing 36 percent year-on-year. But the overall growth in non mark-up income was checked as the gain on securities returned losses in excess of Rs2 billion during 9MCY19.  Most banks have faced pressure on this account during the period, given the lackluster performance of the stock market for most of the period.

The operating expenses have also increased significantly ever since the New York episode, as the control and compliance costs has considerably increased, especially for the international business. The impact of currency devaluation was also significant on the international business.

Some of the cost escalation can also be attributed to business growth and higher marketing spend. All said, HBL is very well poised to cement its position, once the economy starts to gain momentum – as it boasts of a clean loan book, which is very adequately provided for, and is growing in the right direction.