HMB strongly banking on investments

It doesn’t matter if you are not lending much. Your topline is almost guaranteed to grow at a decent rate, if you are smart enough to have invested in government papers. This is what Habib Metropolitan Bank (KSE: HMB) did quite well in 1QCY14, posting a double-digit topline increase and an impressive bottom line growth.
HMB’s advances slid by 8 percent over CY13 year-end, taking the ADR down to 44 percent from 52 percent at the end of CY13. Whether it was part of a broader strategy to shy away from lending or a genuine lack of appetite of fresh loans from the private sector – is not clear yet. One hopes it is the former, as one keeps hearing the ‘private sector boost in confidence’ and the ‘economy back on track’ mantra and quotes very often of late.
Not that HMB is the one to actually mind that. An almost monumental rise of 61 percent over CY13 year-end numbers, in investments, ensured that the topline and gross spreads grew. Slightly improved spreads also suggest an improved CASA. The post-provisioning NII improved significantly, on the back of a considerable decline in the provisioning expense. Recall that the bank’s NPLs have been on a steady decline of late.
All else were mere footnotes as the bottom line growth was primarily driven by strong top line growth.
With the interest rates, in all likelihood, to stay on the lower side in the near future, HMB may not be in a hurry to change strategy and start lending aggressively. You can argue at length over a bank’s primary role but why fix it if it ain’t broke. And HMB’s shareholders certainly wouldn’t mind the profits, as long as they keep coming.

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Habib Metropolitan Bank Limited

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Rs (mn)                            1QCY13    1QCY14     chg

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Markup Earned                        6427      7137    0.11

Markup Expensed                      4261      4616    0.08

Net Markup Income                    2165      2522    0.16

Provisioning/(Reversal)               650       488    -0.2

Net Markup Income after provisions   1515      2034    0.34

Non Mark-up/Interest Income          1195      1161

Operating Revenues                   2710      3195    0.18

Non Mark-up/Interest Expenses        1597      1800    0.13

Profit Before Taxation               1114      1396    0.25

Taxation                              355       400    0.12

Profit After Taxation                 758       996    0.31

EPS (Rs)                             0.72      0.95

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Source KSE Notice