Habib Metropolitan amasses big profits

Lower yields? Does not matter - we have enough PIBs. Just when everyone thought the reversal in interest rate cycle will slowdown banks profitability, Habib Metropolitan Bank (HMB) racked up tremendous growth from top line to bottom. The asset size has undoubtedly increased, but it is the shift in the asset composition that keeps the top line going.
With latest balance sheet numbers still to be known, CY14 numbers offer enough hint how HMB managed a great quarter in terms of profitability. The ADR had gone down to as low as 42 percent by the end of CY14, with the IDR nearing 70 percent. The mark-up income composition too was tilted heavily towards investments, constituting nearly two-third of the top line.
The gross spreads may have gone down as the yields have thinned, but a larger asset base ensured sizeable growth. Deposits have also grown at a decent pace, but more remains to be down on the CASA front, which is on the lower side below 60 percent. Growing NPLs and a less than adequate coverage ratio may cause a concern, should the bank aim to lend more.
The non-mark-up income lent able support to the bottom line, mainly at the back of huge gains on sale of securities. It was all rosy in the first quarter, but status quo cannot go on forever. Something has to give - and to where the interest rates are headed, it appears HMB will have to make a strategic shift towards more high yielding advances.
In times when the SBP is keeping a vigilant eye on depositors returns and when the deposit composition is far from ideal, reluctant to lend or being complacent may not pay dividends. Yes, the cross selling is key to HMBs fortunes, but core banking has to be the backbone for sustainable profits.

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Habib Metropolitan Bank Limited (Unconsolidated P&L)

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Rs (mn)                            1QCY15      1QCY14         chg

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Markup Earned                        9203        7137         29%

Markup Expensed                      5955        4616         29%

Net Markup Income                    3248        2522         29%

Provisioning (Reversal)               767         488         57%

Net Markup Income after provision    2481        2034         22%

Non Mark-up/Interest Income          1800        1161         55%

Total income                         4280        3195         34%

Non Mark-up/Interest Expenses        2096        1800         16%

Profit Before Taxation               2185        1396         57%

Taxation                              772         400         93%

Profit After Taxation                1413         996         42%

EPS (Rs)                             1.35        0.95

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Source: KSE notice