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Bank Al Habib Limited (BAHL) built on the strong earlier quarterly performances and closed the year with another solid quarter. The pre-tax and aster-tax profits, both grew by a considerable 33 percent year-on-year. The interest rates ride was there for the taking, and BAHL was not shy taking a good shot at it. But it was not all smooth sailing in terms of the challenging environment, the country faced. In that light, the profit growth is commendable.

The balance sheet expanded appreciably to Rs1.29 trillion by 24 percent over December 2018. Almost the entire asset expansion was fueled through the investment portfolio. The government securities offered decent risk-free returns, taking the investments higher by 41 percent over December 2018 to Rs586 billion as at December 31, 2019. The composition within the investment portfolio has shifted across the industry, as the interest rates demand more exposure in shorter term papers, as opposed to long-term PIBs. Needless to say, lion’s share of the mark-up income came through the investments.

Bank Al Habib Limited
Rs (mn) CY19 CY18 chg
Markup Earned 105,602 60,733 74%
Markup Expensed 64,416 29,839 116%
Net Markup Income 41,186 30,894 33%
Non Mark-up / Interest Income 9,481 7,268 30%
Total income 50,667 38,161 33%
Non Mark-up / Interest Expenses 28,261 23,651 19%
Provisioning/(Reversal) 3,395 247 1274%
Profit Before Taxation 19,011 14,264 33%
Taxation 7,842 5,846 34%
Profit After Taxation 11,169 8,418 33%
EPS (Rs) 10.05 7.57
Source: PSX notice

On the advances front, there was not much happening. The ongoing economic slowdown, contraction in LSM growth, reduced trade activity due to import compression and higher duties, and reduced consumer purchasing power owing to double-digit inflation, were enough reasons to keep borrowers at bay. The genuine credit appetite was seen missing for most part of the year, apart from the regular blue-chip borrowers. The trend reflects well in BAHL’s advances portfolio which only jumped 2 percent over December 2018 to Rs489 billion.

The NPLs to gross advances ratio remained contained at a very manageable 1.46 percent, which shows BAHL has not lost grip on the prudence aspect of its management. The coverage ratio is adequate enough to provide for the non-performing portfolio. That said, significantly higher provisioning charges were booked on the P&L. The ADR slid from 60 percent last year to 54 percent as at December end 2018. This is still higher than the industry average ADR.

On the liabilities front, the double-digit growth was higher than the industry average steady, with the deposits base growing by a healthy 13 percent over December 2018 to Rs903 billion. Improving the CASA mix has been an industrywide trend, especially in times of squeezed spreads.  With deposit breakup yet to be known, one could safely assume BAHL has continued the march towards an improved deposit mix, to lessen the cost of deposit.

The interest rates may well have peaked, but the monetary policy reversal cycle may not start as soon as was earlier expected. Some expect the interest rates to stay at the current highs for the next two to three monetary policies. It remains to be seen whether the economic slowdown has bottomed out yet or not, as that will determine the lending patterns going forward. All said, BAHL’s core soundness indicators are all well placed, and profitability sees no imminent threat.