Habib Bank Limited

BRIEF INTRODUCTION: HBL was established in Pakistan in 1947 as the first commercial bank. Over the period, the bank has grown staggeringly to become the largest private sector bank with over 1,500 branches and 830 ATMs across the country and a customer base of over five million customers.
The bank was privatised in 2004 with major ownership stake and management control held by Aga Khan Fund for economic development (AKFED). The second largest shareholder is government of Pakistan with 42.5 percent of shareholding while 7.5 percent of shares are publicly held. HBL has its presence in 25 countries besides having its subsidiaries in Hong Kong and the UK, affiliates in Nepal, Kenya and Kyrgyzstan and representative offices in Iran and China. HBL has the largest Corporate Banking portfolio in the country with an active Investment Banking arm. Moreover, SME and Agriculture lending programmes and banking services are offered in urban and rural centres.
PERFORMANCE SNAPSHOT, 1QCY13: In the face of discount rate having shed 250 basis points since 1QCY12, the ability of HBL to garner top line growth of 18 percent year-on-year in 1QCY13 appears to be a commendable feat. However, the fact that top line growth is highly driven by investments blots its very appeal.
During 1QFY13, HBL's investments picked up by nine percent year-on-year while advances that had already begun lazy growth of late, finally entered the negative zone, shrinking by two percent year-on-year. This tread of HBL is further evident by its mushrooming IDR and dwindling ADR.
During 1QFY13, deposits grew by three percent year-on-year with a nominal uptick in its low cost deposits. Delving further into the details of low cost deposits confides that over 60 percent share of HBL's low cost deposits is concentrated in saving accounts. Earlier last year, SBP increased the floor rate on saving accounts by 100 basis points, which took its toll on bank's cost of deposits, thus battering its spread ratio. HBL also continued to garner earnings from diversified sources, mainly from fee, commission and brokerage income which grew by 18 percent year-on-year bearing a testament to HBL's leadership position in bancassurance business.
Besides, income from equity investments also flourished owing to superior KSE performance amid dropping interest rate backdrop. Conversely, a sizeable drop in foreign currency income offset the gains produced by other non markup sources, ensuing in a net growth of two percent year-on-year.
However, battered by unusually high cost of deposits, HBL's significant top line growth and non mark-up income couldn't produce a trickledown effect on its profits which in-turn fell by 16 percent year-on-year. Going forward, with banks instructed by SBP to pay at least the minimum rate on average monthly balance instead of minimum balance of saving accounts, the spreads of the banking sector 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.
SUMMARIZING PAST PERFORMANCE: CY12 proved to be a tremendous year in HBL's history. With a growth of over 48 percent in its earning assets, the top line achieved a growth of 18 percent. Although the top line growth is lesser when compared to the growth of 21 percent witnessed in CY11, however, considering the interest rate backdrop in two years, the performance in CY12 looks overwhelming.
The superior top line fails to produce its impact on the bottom line amid swelling markup expenses. This is because of HBL's CASA which slid over the year despite healthy growth of 30 percent in its deposits. Besides, SBP also imposed a raise in the floor rate of saving deposits. Resultantly, the gross spread ratio of HBL witnessed a drastic drop over the period.
During the year HBL Islamic Banking showed vigorous growth. HBL Islamic banking deposits increased by 160 percent to Rs 31 billion in CY12 as against Rs 12 billion in CY11. The exponential growth in Islamic deposits was possible due to addition of 11 new branches along with two sub branches, relocation of 11 branches to high potential areas and addition of 33 new windows for Islamic Banking.
Advances grew by nine percent during CY12 as against the investment growth of 90 percent, which speaks volume of the bank's approach of finding safe-haven in government securities. Delving into details of advances, HBL has the highest exposure in public/government businesses which account for 21.45 percent of its total advances portfolio. Among government/ public businesses, Agri business grabs the major share of over 49 percent followed by power and energy (30 percent) and Automobile (8.7 percent). In general, the bank's major credit risk is concentrated in textile sector.
FUTURE OUTLOOK: With interest rates expected to turn its gaze up in 3QCY13, banks' top line might garner some support. However, SBP instruction to pay at least minimum profit on the average balance of saving deposits instead of minimum balance tend to offset the impact of increasing interest rates.
With Sharif poised to become Prime Minister, the country is likely to witness some sheer economic reforms as hinted by the party. Revival of economy has been placed at the top of the priority list of the with some of the major targets being GDP growth of 6 percent, budget deficit down to four percent of GDP, Tax-to-GDP ratio increased to 15 percent by 2018, privatisation of PSEs, reforms in financial and capital markets, besides boost in foreign inflows. Given the promises hold any reality, the situation might bode well for the banking sector, among others. It might provide liquidity to the banking system, enabling it to venture private sector avenues thereby reviving its core business.

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Habib Bank Limited

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Rs (mn)                             CY11      CY12    1QCY13

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Markup Earned                     98,580   116,773    31,304

Markup Expenses                   42,182    59,012    18,117

Net Markup Income                 56,398    57,760    13,187

Provisioning/(Reversal)             6,857     6,767    1,309

Net Markup Income

 after provisions                 49,541    50,993    11,878

Non Mark-up / Interest Income     14,783    15,960     3,862

Operating Revenues                64,324    66,953    15,740

Non Mark-up / Interest Expenses   30,002    32,062     7,834

Profit Before Taxation            34,321    34,891     7,906

Taxation                          11,988    12,535     2,808

Profit After Taxation             22,333    22,356     5,098

EPS (Rs)                           18.30     18.36      4.14

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Source: Company Accounts.

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Habib Bank Limited

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Indicators              CY11     CY12   1QCY13

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Infection Ratio          12%      11%      12%

Coverage Ratio           81%      82%      80%

Spread Ratio             57%      49%      42%

Capital Ratio            10%       8%       8%

IDR                      45%      66%      70%

ADR                      49%      41%      39%

CASA                     68%      66%      67%

ROA                       2%       1%     0.3%

ROE                      20%      17%       4%

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