Habib Metro: steady profit growth

All time low interest rates are sure to have an impact on most banks' top line this season, and Habib Metropolitan Bank (HMB) has felt the pinch too. The balance sheet has been growing alright, but low interest rates ensured the yields remained thin, hence a drop in top line growth. Surprisingly, HMB could not manage to reduce its mark-up expenses as much as it would have ideally liked, indicating the bank may need some catching up to do as regards the deposit mix.

HMB's deposit has been growing at a phenomenal rate, well above industry average. Balance sheet numbers for the 1QCY16 are not known yet, but it appears that the CASA ratio could improve further than where it may be right now.

HMB took full advantage of the government treasuries and PIBs on offer in the last couple of years - evident from the high IDR of 70 percent at the end of CY15. But the yields on government papers have gone down quite a bit recently, hence slowing the top line growth. HMB's advances remained stagnant for much of CY15, as the focus either remained on government securities or there was a genuine lack of credit demand. The ADR as a result was seen at a low 33 percent by the end of CY15.

A sizeable decline in provisional charges brought stability to the post provisioning net mark-up income. And a further boost was given by the non-mark-up income, which grew by a healthy 23 percent year-on-year. Gain on sale of securities has been a recurring phenomenon for the industry lately, and HMB pounced on the opportunity to full advantage.

The bank managed to keep an exemplary control over its administrative expenses, which is a commendable feat, especially when deposits are on a rise. The cost to income ratio, as a result, continues to improve. Interest rates may well have bottomed out, but it could be a while before they start inching up again.

Banks would have to come out of the comfort zone and start lending at some point. Low yields on government securities and improving macroeconomic conditions, should work well for banks looking for credible borrowers, other than the government. In terms of profit, CY16 could be tricky. As repeating the CY15 performance, which was largely driven by gain on sale of securities, would not be easy for banks - and HMB may not be an exception to the rule.