Habib Metropolitan Bank

Habib Metropolitan Bank was incorporated in Pakistan in 1992 as a public listed company. The bank started its commercial operations in the last quarter of CY92, under the name Metropolitan Bank. In 2006, the operations of Habib Bank AG Zurich merged into Metropolitan Bank Limited and the merged entity was named as Habib Metropolitan Bank Limited. To-date, HBZ is the principal shareholder of Habib Metropolitan Bank.
The HBZ group has a rich tradition of banking and commerce dating back to over 160 years. With its headquarters based in Switzerland, the HBZ group operates in Hong Kong, Singapore, United Arab Emirates, Kenya, South Africa, United Kingdom and North America and boasts an international ranking of 687 in terms of capital. Habib Metropolitan Bank has its focus mainly inclined towards trade financing and retail financing. Besides, the bank also provides innovative consumer and e-banking solutions to its customers nation-wide. Moreover, the bank's Islamic banking division caters to the needs of customers seeking Shariah compliant products.
Pacra has allotted both long-term and short-term ratings at "AA+" and "A1+" respectively. These ratings are the highest amongst the local sector private banks and indicate a very low probability of credit risk emanating from a very strong capacity for timely payment of financial commitments.
Performance Analysis 1QCY13: During the first quarter of the ongoing fiscal year, the top line of HMB slid by 14 percent year-on-year. Backed by a skimpy growth in its advances portfolio, top line drop was a much expected phenomenon. However, what entices the most is the bank's ability to keep its mark-up expenses in check while other banks are grappling against the headwinds.
During April CY12, SBP increased the floor rate on saving deposits by 100 basis points to six percent. The decision took its toll on the net interest margins (NIM) of the banking industry which shrank by 103 basis points year-on-year in 1QCY13. However, HMB remained quite successful in going against a tide by managing to drive its NIM up by 200 basis points during the similar period. Resultantly, spread ratio also inched up to 33 percent - close to the peer group average of 35 percent.
Credit for the improved NIM goes to the excellent deposit mobilisation during the period which is largely skewed towards low-cost deposits. During 1QCY13, low cost deposits piled up by 16 percent year-on-year, driving up the CASA ratio by a stupendous 400 basis points.
It appears that HMB exercised all possible means to keep its bottom line healthy. Besides, an efficient collection of low cost deposits in 1QCY13, the bank availed the benefit of Forced Sale Value (FSV) against non-performing advances (excluding consumer housing finance portfolio) which lowered the specific provision by Rs 4084.503 million. This timely move undertaken by the bank also buttressed its bottom line by Rs 2454.927 million which otherwise would have been lowered by the same amount, dragging the bank into losses zone.
Non mark-up income, as always, proved to be a blessing for the bank. After rate cut of 250bps in CY12, debt securities held by the banks have increased in value. A quick look at the P&L statement for 1QCY13, it appears that the bank vigilantly realised these gains as evident by a staggering boom of over nine times in gain on sale of securities.
While the bank momentous efforts to keep its bottom line in the pink, the top line slide coupled an increase in non mark-up expenses irked the bottom line which ended up losing 10 percentage points in 1QCY13. However, had the bank not taken strategic measures such as FSV realisation, CASA enhancement and sale of securities, the bottom line drop would have been profound.
Summing up past performance (2011-12): An overview of HMB's performance over past two years speaks volume of its ability to keep its top line intact amid monetary easing, kudos to superior deposit mobilisation. More admirable is the fact that deposit growth comes on the heels of low-cost deposits as evident by its CASA stepping up.
The inclination towards low-cost deposits also sustained HMB's mark-up expenses giving sufficient room to its spread ratio. Over the year, loans, cash credits, running finances etc advanced by the bank grew over the period, the downtick witnessed in gross advances comes on the back of Ijarah financing. Investment, although grew from 2011 to 2012, however it is not visible in the investment-to-deposit ratio due to tremendous deposit growth. The Achilles heel is the bank's soaring non-performing loans (NPLs) which grew by 15 percent year-on-year in 2012. However, the bank is also increasing the provisions proportionally to be on the safe side.
Future Outlook: With the recent PIB and T-bill auctions pointing towards rate cut, the future of banking sector appears murky. With further monetary easing, banks' spreads will shrink further, triggering them to venture the risky private sector credit or either heavily rely on balance sheet growth, asset quality improvement, capital gains and cost controls to support their bottom lines.
On the positive side, with new government taking hold any time soon, market participants anticipate boost in foreign flows. This will provide enough liquidity to the interbank market. Besides, the market is also pinning hopes on 3G auctions, overdue payment for the privatisation of PTCL and the promised release of Coalition Support Fund by the US to provide sufficient liquidity to the market.
The real check of the new government's plan for economic revival will be the second quarter of next fiscal year when the country is supposed to pay a huge amount of dollar 1.685 billion SDR to the IMF. With the worsening balance of payment and fiscal position, fresh IMF program seems to be highly foreseeable move. Given the country enters any such programme; discount rate will turn its gaze up - a good omen for the banking industry.

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Habib Metropolitan Bank

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Rs(mn)                               CY11      CY12    1QCY13

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Markup Earned                      27,263    27,155     5,933

Markup Expenses                    19,536    18,822     3,995

Net Markup Income                   7,727     8,333     1,938

Provisioning/(Reversals)            2,755     2,694       650

Net Markup Income after provision   4,973     5,639     1,288

Non Mark-up/Interest Income         5,199     5,458     1,434

Operating Revenues                 10,172    11,097     2,722

Non Mark-up/Interest Expenses       5,527     6,059     1,605

Profit Before Taxation              4,645     5,038     1,118

Taxation                            1,356     1,645       357

Profit After Taxation               3,289     3,393       761

EPS (Rs)                             3.14      3.24      0.73

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Source: Company Accounts

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Habib Metropolitan Bank

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Key Indicators          CY11     CY12   1QCY13

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Infection Ratio          14%      17%      15%

Coverage Ratio           65%      70%      74%

Efficiency Ratio         54%      55%      59%

Spread Ratio             28%      31%      33%

Capital Ratio             9%       9%       9%

IDR                      80%      74%      67%

ADR                      59%      49%      56%

CASA                     48%      50%      54%

ROA                    1.14%    1.13%    0.26%

ROE                      13%      12%       3%

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