In CY12, Habib Bank seemed protected against the headwinds blowing towards the industry. However, the countrys largest deposit-gathering bank doesn appear immune this time around.
With discount rate shedding 250 basis points since 1QCY12, HBLs year-on-year top line growth of 18 percent is a commendable feat. However, the fact that top line growth is highly driven by investments dampens the appeal.
Low appetite for risk kept HBL focused on investments in government securities despite lower yields. New loans also remained confined to low-risk, stable businesses.
During 1QCY13, HBLs investments picked up by nine percent year-on-year while advances that have already been undergoing lazy growth, finally entered the negative zone, shrinking by two percent year-on-year. This is quite visible in the banks mushrooming IDR and dwindling ADR.
The first quarter saw HBLs deposits grow by three percent year-on-year, with a very nominal uptick in its low cost deposits (See CASA ratio). Over 60 percent share of HBLs low cost deposits is concentrated in saving accounts. Earlier last year, the central bank increased the floor rate on saving accounts by 100 basis points, which took a toll on the banks cost of deposits.
HBL also continued to garner earnings from diversified sources, mainly from fee, commission and brokerage income, which grew by 18 percent year-on-year. Income from equity investments also flourished owing to superior stock market performance. Conversely, a sizeable drop in foreign currency income offset the gains produced by other non mark-up sources, ensuring a net growth of two percent year-on-year.
However, battered by unusually high cost of deposits, HBLs significant top line growth and non mark-up income couldn produce a trickledown effect on its profits which in turn fell by 16 percent year-on-year.
Going forward, with banks instructed by the SBP to pay at least the minimum rate on average monthly balance instead of minimum balance of saving accounts, banking spreads are likely to take further brunt.
To add to ado, HBL will be the major victim of this move by SBP, as its saving accounts constitute over 40 percent of its total deposits. Thus, for HBL, the future strategy must not only be deposit mobilisation, but also, deposit cost reduction.
With its deposit-to-market capitalisation one of the highest among its peers, HBL remains among the key beneficiaries of any reversal in monetary cycle.
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Habib Bank Limited
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Indicators 1QCY13 1QCY12
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Infection Ratio 12% 11%
Coverage Ratio 80% 82%
Spread Ratio 42% 54%
Capital Ratio 8% 8%
IDR 70% 66%
ADR 39% 41%
CASA 67% 66%
ROA 0.3% 0.4%
ROE 4% 5%
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Source: Company Accounts
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Habib Bank Limited
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Rs (mn) Chg 1QCY13 1QCY12
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Markup Earned 18% 31,304 26,568
Markup Expenses 47% 18,117 12,329
Net Markup Income -7% 13,187 14,239
Provisioning 29% 1,309 1,016
Net Markup Income
after provisions -10% 11,878 13,223
Non Mark-up/Interest Income 2% 3,862 3,796
Operating Revenues -8% 15,740 17,019
Non Mark-up/Interest Expenses 9% 7,834 7,170
Profit Before Taxation -20% 7,906 9,849
Taxation -25% 2,808 3,757
Profit After Taxation -16% 5,098 6,092
EPS (Rs.) 4.14 4.97
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Source: Company Accounts