Habib Bank’s net profits for the nine months ending September 2013 slid 4 percent year on year. However, quarterly comparison shows that the bottom line did well, witnessing a jump of 14 percent quarter on quarter.
The 3Q CY13 remained muted in terms of top line growth that slid by 2 percent quarter on quarter. This makes sense as this quarter bore the pains of a 50 basis points rate-cut happened in the last quarter. An investment-based asset portfolio might also have lent a hand in weakening HBL’s top line performance in the third quarter.
Although investment forms a major chunk in HBL’s asset pie, investments shrank by 11 percent quarter on quarter during 3Q CY13. This might be attributable to the external one-off event, i.e. uncertainty on the discount rate front on the back of IMF programme and muted cut-off yields on T-bills that keep investors at bay.
Weaknesses in top line, however, were unable to deter bottom line growth owing to massive quarter-on-quarter jump in earning spreads.
The net interest margin (NIM) of the bank picked up by 9 percent quarter on quarter with spread ratio clocking in at 48 percent in the 3Q CY13 as compared to 42 percent in the previous quarter.
A thorough analysis shows that HBL’s borrowing dipped by around 64 percent quarter on quarter in 3Q CY13 and the plunge came mainly on the back of a reduction in Repo borrowings. Besides lesser borrowings during the quarter, the growth in HBL deposits was triggered by the low-cost deposits especially current deposits while fixed deposits shrank by Rs1.37 billion during 3Q CY13. All these factors appear to be behind the healthy spread ratio during the third quarter.
While Non-Performing Loans (NPLs) surged by 3 percent quarter on quarter reversals against loans and advances kept surging in the third quarter. Substantial loan coverage in yesteryears coupled with bank’s disinterest of risky lending avenues off late might have pushed the bank to further shun away the buffer created for bad loans. HBL’s coverage ratio dropped from 79 percent in 2Q CY13 to 78 percent in 3Q CY13.
Superior quarter-on-quarter growth in non-funded income also buttressed HBL’s bottom line. The growth in non-funded income came on the heels of dividend income, capital gains on the sale of securities and income from dealing in foreign currencies.
While HBL’s top line is expected to perk up in the future owing to likely hike in discount rate, what HBL needs to be worried about is spread shrinkage as upticks in discount rate will be followed by boosts in minimum return on saving deposits (MDR).
While saving deposits form a substantial 45 percent of HBL’s total deposits as of 3Q CY13, the writing is on the wall for the country’s largest bank. A possible solution could be to enhance lending to private sector, which could jazz up its top line considerably to undo the impact of rise in mark-up expense.
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HABIB BANK LIMITED (CONSOLIDATED P&L)
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Rs (mn) 2QCY13 3QCY13 chg
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Markup Earned 30,256 29,551 -2%
Markup Expenses 17,202 15,376 -11%
Net Markup Income 13,055 14,175 9%
Provisioning/(Reversal) -112 -138 23%
Net Markup Income after provisions 13,167 14,312 9%
Non Mark-up/Interest Income 4,163 4,829 16%
Operating Revenues 17,330 19,141 10%
Non Mark-up/Interest Expenses 9,367 9,944 6%
Profit Before Taxation 7,963 9,197 15%
Taxation 2,541 3,000 18%
Profit After Taxation 5,422 6,197 14%
EPS (Rs.) 4.01 4.55 13%
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Source: KSE Notice
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