HBL: ‘Advances’ on

Pakistan’s largest commercial bank HBL, announced its CY22 financial results posting 24percent year-on-year growth in pretax profits. Despite challenging conditions on inflation front and rising interest rates, volumetric expansion and timely asset and liabilities re-profiling contributed to healthy profit growth. Retrospective taxation measures during CY22 took the effective tax rate to 49 percent from 39 percent a year ago – taking post tax profit down 3 percent year-on-year.

Towards the end of the year, banks were seen striving to achieve an ADR in excess of 50 percent. HBL had achieved that towards the end of 9MCY22 and further consolidated, as advances grew 18 percent over December 2021. This was one of the rare occasions where advances outperformed investments growth in the asset mix. Investments remained largely unchanged from a year ago at Rs1.9 trillion. HBL’s ADR improved to 53 percent – one of the highest the bank has recorded in a long time.

Agri-business was the fastest growing sector in terms of advances, followed by textile which retained the top slot, and individuals. The NPLs grew from a year ago, but the infection ratio was curtailed to 4.8 percent, which is an all-time low for HBL – down from 5.1 percent – the provision coverage remained adequate at over 100 percent.

Net interest income grew largely on the back of massive increase in average balance sheet volume – which was up Rs540 billion in CY22, and margin expansion by 81 basis points over last year. On the liabilities front, deposit growth stayed muted at 2.6 percent over December 2021, but the deposit mix continued to improve. CASA ratio for domestic deposits improved to 86.5 percent. Current account registered a 19 percent growth over last year – easily the fastest growing deposit category.

HBL’s leader status in fee and commission income was further consolidated by double-digit growth, coming on the back of strong growth in card related income, merchant discount and trade related commission. Foreign exchange income nearly doubled year-on-year – contributing the most to non-funded income growth. Operating expenses understandably remained on the higher side, given inflationary pressures –taking the cost to income ratio slightly higher from last year.

As interest rates are slated to go higher and macroeconomic conditions appear far from rosy – CY23 could pose challenges in terms of maintaining double-digit growth in advances, and a higher chance of loan quality deteriorating as industries and individuals’ purchasing power takes a big hit. That said, HBL’s solvency ratios are as sound as they have ever been – and the bank should be able to raise the rough wave better than most others.