HBL took the market by surprise on Monday. The countrys biggest private lender by deposits managed to increase its net profits by 23 percent in a quarter which was otherwise marked by stagnant industry loans. The bank said it earned Rs 4.02 billion in July-September period - pushing its nine-month earnings higher by 10 percent over last year.
With its market share of loans up by 50 basis points, HBL managers didn just lower its provisioning but also enhanced the banks bad loans coverage ratio by one percent. This shows the benefit of widespread reach of the lender backed by better management decisions. However, after capitalising on its innovative products with aggressive marketing campaign to enhance its deposits share by 27 bps in second quarter, the market of its new products seems to have saturated in the last three months with share in deposits declining by 35 bps.
Nonetheless, by focusing on high yielding assets with prudence, the bank has been able to marginally improve its much lagging return-on-equity, which increased by 368 bps to 19.1 percent in the nine months ending September. This is despite the fact that HBLs advance-to-deposit ratio fell by 197 bps to 79 percent in the same period.
This trend is sharp in contrast to its peer, MCB, whose ROE is still above 28 percent, despite witnessing continuous decline in the last few quarters. There seems like a rationalisation of business amongst key market players in which prudence is virtue.
A closer look at profit and loss accounts reveals that higher growth in mark up expenses relative to its interest income has subdued the banks core business income growth to 9 percent year-on-year in the last quarter. However, this fall was substantially supported by low provisioning against bad loans in the last quarter.
The banks lack of interest in non-core business amid lower penetration in consumer segment is whats keeping the return for shareholders under pressure relative to its peers. Although, fee commission and other income fell by just one percent in 9MCY09 - it dropped by 10 percent in the last quarter.
Yet, its long reach amid low profile organisation culture helped the bank to remain cost effective with administrative expenses - which virtually remained unchanged in the last three months - increasing by just 10 percent for all the three quarters combined.
Looking ahead, HBL has further room to enhance its deposit base with the private sector credit off-take likely picking up owing to gradual stabilisation amid fresh export orders. What it must do is transfer a bit of its surplus liquidity, currently caught in short term government papers, to further improve its return on equity. But for a long term move, HBL has no option but to start focusing on consumer segment as well as trade activities.
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HBL Profit and Loss accounts
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RS (MN) 3QCY09 3QCY08 GROWTH 9MCY09 9MCY08 GROWTH
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Mark-up earned 18,626 16,345 14% 55,331 43,911 26%
Mark-up expensed (8,342) (6,903) 21% (24,205) (17,947) 35%
Net mark-up Income 10,285 9,442 9% 31,126 25,965 20%
Provisioning (1,154) (1,666) -31% (5,328) (2,899) 84%
Net mark-up income
after provions 9,131 7,776 17% 25,798 23,065 12%
Non-mark-up income 2,501 2,770 -10% 7,197 7,295 -1%
Operating revenues 12,786 12,212 5% 38,323 33,260 15%
Non-markup expenses (5,479) (5,481) 0% (16,422) (14,989) 10%
Profit before taxation 6,153 5,065 21% 16,573 15,371 8%
Profit after taxation 4,019 3,259 23% 10,573 9,616 10%
EPS (RS) 4.41 3.58 11.61 10.56
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