Low spreads - what low spreads? Habib Metropolitan Bank (HMB) is having a really good time. Yes the spreads have not increased, in fact they are at the lowest for some time, but the investment opportunities on offer are too lucrative for banks at the moment. HMB seems to have cashed in on the PIB party thrown by the government and seems to have made a good feast of it.
Well in line with the industry trend, HMBs asset mix has tilted heavily towards investments of late. The investment to deposit ratio stood at 74 percent as at June 30, 2014, up from 57 percent as at December 31, 2013. The ADR on the other hand, has dipped sharply, and for obvious reasons when the yields on long-term PIBs match those on the most high profile corporate advances.
The tide may change soon, should the interest rates start coming down. It will offer a good chance to banks like HMB to cash in on capital gains. Maintaining high spreads will remain a trouble, especially in todays scenario of increased minimum return on deposit requirement by the SBP.
HMBs CASA ratio has further room for improvement, to take the pressure off the NIMs. Cost of deposits is relatively on the higher side, and HMB is making efforts to improve the liability mix. The banks infection ratio is slightly on the higher side and HMB would not mind rationalising the advances portfolio and provide adequately.
Noncore income failed to grow from previous year, yet it was sizeable enough to help propel the bottom line. Administrative expenses remain an area of concern and some tightening on this front maybe needed.
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