HBL is the largest and the first commercial bank in Pakistan. The company has tremendously grown its network over the years and now stands with a network of over 1600 branches and over 2000 ATMs globally, serving over 27 million customers worldwide. Besides efficiently managing its huge branch network, the bank employs state-of-the-art digital banking channels to stay closer to its customers in an innovative manner. HBL pay billing portal, RAAST, HBL mobile, and HBL digital account are some of the initiatives put forth by the bank to foster branchless banking.
HBL has a presence in 13 countries and is the largest multinational bank in Pakistan. Besides, the bank is proud to be the leading financial executor of CPEC in Pakistan. The bank also proudly offers end-to-end RMB intermediation through its HBL Urumqi Branch initiated in 2019. Moreover, HBL became the first Pakistani bank to be awarded the license to offer financial services to clients in Beijing.
The Aga Khan Fund for Economic Development S.A. (AKFED) is the parent company of HBL having its registered office in Geneva, Switzerland.
Pattern of Shareholding
HBL has an outstanding share capital of 1.46 billion shares held by 91,934 shareholders with 91,160 shareholders being the general public. AKFED is the largest shareholder of HBL with a shareholding of 51 percent. This is followed by foreign companies with a shareholding of 7.4 percent. The general public holds 7.2 percent of the total shares outstanding. CDC group PLC enjoys 4.99 of HBL’s shareholding. This is followed by Associate companies, undertakings, and related parties holding 4.7 percent of the outstanding shares. Other significant shareholders include Banks, DFIs and NBFIs, Insurance companies, Modarbas and mutual funds, etc.
HBL’s Performance 9MCY22
HBL has witnessed an outstanding year-on-year growth of 60 percent in its mark-up income during 9MCY22. While the bank’s assets collectively grew by only 5 percent, the rise in the policy rate might have played its role to keep the top line buoyant during the period. However, the increase in the policy rate also added to the bank’s mark-up expense, keeping the net mark-up income in check which grew by 19 percent during 9MCY22. The spreads also widened on account of lagged asset re-pricing.
HBL was able to increase its Advances-to-Deposit Ratio (ADR) from 45 percent during 9MCY21 to 51 percent in 9MCY22. This is the result of a year-on-year increase in the bank’s advances portfolio by 14 percent during 9MCY22 coupled with a meager decrease in its deposits. The increase in advances is mainly driven by corporate lending which is the safest bet to keep the infection ratio in check. With higher taxation on government income for the banks having a low ADR, the commercial banks have been trying to lower their deposits to boost their ADR and evade higher taxation amidst a low appetite for borrowing across all customer segments.
The bank’s non-markup income also boasted an impressive year-on-year growth of 38 percent mainly coming on the heels of fee and commission income which speaks volumes about the bank’s growing branch network. The growth in fees was also achieved by the HBL flagship card business coupled with contributions from trade, finance, consumer, and branchless banking. This contributed a lot to the bottom line and HBL was able to attain a striking 20 percent year-on-year growth in profit before taxation. However, the EPS couldn’t muster growth during the period because of excessive taxation applied in the federal budget which culminated in a 12 percent year-on-year dip in the HBL’s profit after taxation during the period.
Talking about the balance sheet, the year-on-year growth of 14 percent in advances came at a cost. Non-performing loans clocked in at Rs.91.8 billion during 9MCY22 as compared to Rs.80.8 billion during the same period last year; however, the infection ratio remains intact during both periods i.e. 5 percent. Moreover, HBL has a coverage ratio of 87 percent during 9MCY22 which demonstrates that it has provided for its non-performing loans quite well. As a matter of prudence, the ban has also maintained a general provision on account of borrowers affected by Covid as well the current economic conditions.
The low-cost deposit ratio i.e. CA ratio of HBL grew from 35 percent during 9MCY21 to 40 percent during 9MCY22. However, savings and term deposits still constitute the major chunk of HBL’s deposit portfolio. With the imposition of a minimum deposit rate on the banks, markup expense sees no respite which grew by over 100 percent during 9MCY22.
Performance over the years (2017 – 2021)
Over the years, HBL has shown remarkable performance in terms of deposit mobilization which stood at Rs.3.2 trillion as of CY21 as against 1.89 trillion in CY17. This culminates in a market share of 14.4 percent in CY21. However, the low-cost current deposits account for 34 percent of HBL’s deposit portfolio while saving and term deposits have a share of 62 percent, resulting in high markup expense. The current deposit mix has been declining since CY18.
Over the years, the bank has been shedding its IDR which stood at 60 percent as of CY21 vis-à-vis 70 percent in CY17. In contrast, ADR has shown a growth momentum but still stands at 43 percent vis-à-vis 42 percent in 2017. Despite spread contraction, HBL has been able to boast an unabated growth in its net interest income which stands at Rs.131 billion as against Rs.81 billion in 2017. This is because of strong balance sheet expansion.
Non-interest income also contributes significantly to the bottom line of HBL. As of CY21, non-interest income stands at 22 percent of the total income of the bank. The major growth contributors are fee and commission income and the growth in its flagship card businesses. However, it is to be noted that the contribution of non-interest income has significantly declined from 29 percent in CY17 to 22 percent in CY22. The major decline occurred in CY18 when HBL realized a significant loss on Pakistan Investment Bonds and Ijarah Sukuk and a drastic dip in the gain on Market treasury bills.
Despite the growth in advances and ADR, non-performing loans are able to drop over the years with an infection ratio of 5.1 percent in CY21 as against 8.2 percent in CY17. Besides, the bank maintains a coverage ratio of over 100 percent which shows that the non-performing loans are well provisioned.
HBL deserves a pat on the back as a return on assets and return on equity also portray an upward trajectory over the years despite the expansion in the balance sheet and shrinking spreads across the industry.
Future Outlook
The banking sector has been riding on a bumpy ride since the start of CY22. With the increase in the effective tax rate on the banking sector, the increase in taxation on government securities if ADR is below 50 percent and the imposition of a minimum deposit rate has gulped up a huge amount of the banking sector’s income. This coupled with the rupee devaluation has eroded the capital adequacy ratio of HBL despite strong internal capital generation.
In order to improve their income amidst higher taxation, the banks need to work on their lending portfolio; however, this is also impeded by the shortcomings in the judicial system due to which banks find it extremely difficult to recover bad loans. Moreover, with import restrictions and unavailability of power, and high-interest rates, there is a low appetite for borrowing from banks.
In such a scenario, the government should intervene by eliminating the MDR requirement. Moreover, there should be some relaxation on ADR-related taxation as imposing higher tax on low ADR will discourage banks from deposit mobilization which will fade away the very essence of banking. Moreover, pushing the banks away from government securities will not help either when the government is in the dire need of funds.
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