Bank Al Habib Limited (BAHL) has consolidated its balance sheet well enough to be poised to take advantage of ever improving conditions of the banking sector. The after tax profits may well have gone slightly down by 1 percent year-on-year, but the real story has been the balance sheet growth, where the bank is gradually shifting the focus from investments to more lending.
The top line increased impressively owing to both the increase in interest rates and the asset size, which crossed the trillion rupee mark in CY18. The bank’s advances portfolio soared by over 40 percent, outpacing the increase in deposit base. The ADR at the end of December 2018 stood at an impressive 60 percent – up from 49 percent at December end 2017. The advances growth for BAHL is much higher than the industry growth which is in the early double digits.
With the interest rates expected to stay on the higher side, even if they do not go any higher from here – the much bigger advances portfolio is expected to yield a higher mark-up income in CY19. The investments took a completely different direction, with a dip in absolute value, taking the IDR down from 68.7 percent in 2017 to 52 percent.
On the liabilities front, the growth was decent at near 15 percent over December 2017. That said, the bank still has some way to go to match the peers in terms of the deposit mix, as the CASA ratio could do much better than the current 69 percent. BAHL’s loan book is quite clean, providing it a cushion to be aggressive towards lending more of late. The infection ratio is down to 1.08 percent from 1.52 percent as at December end 2017. The NPLs have stayed in control and are adequately provided for at 147.6 percent.
It remains to be seen whether the momentum in advances continues at this pace, given the signs of slowdown in economic activities. The balance sheet growth has been steady and more importantly in the right direction, and gives BAHL a chance to pounce on any opportunities to better the earning yields in 2019.
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