Treasury managers at Habib Metropolitan Bank (HMB) and elsewhere must be planning leisure trips having pocketed decent sums in the half year ended June 30, 2015. Most banks have of late turned into investment banks and shareholders don't mind that one bit. HMB amassed huge profits for the1HCY15, despite new taxation measures and low interest rate scenario.
That the non mark-up income alone was higher than the net mark-up income sheds enough light on what has been the focus for most banks. The gain on sale of securities alone was higher than the administrative expenses, helping HMB register an exemplary cost to income ratio for the period. That said the top line did not disappoint either.
The gross spread ratio has also improved, despite lower yields available on government papers and squeezed spreads generally. But the asset composition for quite some time has been heavily shifted in favour of investments, with the IDR having crossed 70 percent as per the latest available balance sheet numbers.
HMB still has a lot of catching up to do on the CASA front, and the slowdown in deposit growth tells HMB is now focusing more on deposit rationalization rather than accumulating fresh deposits. The coverage and infection ratio, though, will need further improvement, to keep the profits coming in times of thin spreads. Surely, the non mark-up income will not bolster the profits forever.
Lending to the private sector aggressively, may well be too soon to ask, as despite low interest rates, banks seem reluctant to venture into advances. Asset re-composition and worrying about lower yields on treasury bills should now be a talking wait - but that can wait for some time as HMB rejoices doubling its after-tax profits.
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