High provisioning seems to be running out of favour, as HBLs management like MCBs, surprised the market by a 40 percent year-on-year decline in provisioning against toxic assets.
Quite unlike its peer though, HBLs bad loans grew by Rs2.5 billion (5.9%) during Jan-Mar 10 - higher than any quarter last year. Thats a glimpse of bitter-sweet performance of the biggest private lender.
Lower provisioning led to 3 percent growth in net earnings. But there is a darker side to it as well - cyclical economic slowdown amid elusive foreign flows eroded HBLs book value marginally. The return on average equity, resultantly, improved by 104 bps to 18.24 percent.
While losing 0.49 bps in its deposits market share, seasonal credit retirement reduced the banks gross loan book by 3.8 percent during the quarter ending March.
Similar erosion in advances was seen in the first quarter last year but that was compensated by higher exposure in government papers and comparatively lesser bad loans.
HBL credit and risk managers need to sit together to devise a strategy, not only to help regain sanity on non-performance but also to speed up its advances growth. Mind you, net ADR for the bank, after incorporating Rs43 billion power sector TFCs in loan, is down by 365 bps to 70.4 percent.
The profit and loss accounts depicted a rosier picture nevertheless.
Sluggish growth in earning assets amid lower interest rates contained HBLs mark up earnings. A conscious effort to improve falling margins, a 380 bps tilt in deposits mix in favour of demand liabilities facilitated the bank in registering a two percent year-on-year growth in core income. The cost of funds in a years time reduced by 24 bps to 4.72 percent.
Handsome (unrealized) gains in rising stock market helped the banks non-core income grow by 36 percent over the similar period last year. This, however, does not undermine the need to penetrate in largely untapped consumer segment.
The banks conventional old-style banking along with its widespread presence helped control its operating cost as its non mark-up expenditure increased marginally during the last quarter. This coupled with other income has mitigated the impact of flattish core business performance by posting a 9 percent growth in earnings before taxes.
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HBL P&L
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Rs (mn) 1Q2010 1Q2009 % chg
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Mark-up earned 19,157 18,237 5%
Mark-up expensed (8,551) (7,818) 9%
Net mark-up income 10,606 10,420 2%
Provisioning (1,388) (1,272) 9%
Net mark-up income after provisions 9,217 9,148 1%
Non-markup income 2,654 1,949 36%
Operating revenues 13,259 12,369 7%
Non-markup expenses (5,907) (5,640) 5%
Profit after taxation 3,603 3,481 3%
EPS (Rs) 3.96 3.82
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Source: KSE Announcement
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