Commercial Banks: HABIB BANK LIMITED - Quarter Ended March 31, 2005 (Un-audited Consolidated Accounts)

Habib Bank Limited (HBL) started commercial operations on 25th August 1941 with its first branch in Bombay. In 1947, HBL became the first commercial bank of Pakistan, when it shifted its head office to Karachi. HBL, incorporated in Pakistan, is engaged in commercial banking, Modaraba management and related services in the country and overseas.
HBL claims introducing to the Pakistani market products such as Credit Cards, ATMs, Travelers Cheques, etc. HBL Head Office is located at the Habib Bank Plaza, one of the tallest buildings in Pakistan.
HBL has more than 1,700 branches all over Pakistan, has presence in 26 countries across five continents, and employed 18,625 persons at end of 2004 (2003: 18,800). During the quarter under review, 2,030 employees opted for voluntary staff separation under HBL's VSS Scheme, for which the HBL Group has incurred additional cost of Rs2.10 billion, charged to the profit for quarter ended March 31, 2005.
HBL, Pakistan is the holding company of: (i) Habib Allied International Bank Plc, UK; (ii) Habib Finance International Limited, Hong Kong; (iii) Habib Finance (Australia) Limited, Australia; (iv) Habib Financial Services (Private) Limited, Pakistan; and (v) Habib Currency Exchange (Private) Limited, Pakistan. Net assets of subsidiaries companies (before intra group elimination) as on December 31, 2004 were Rs 3.756 billion (2003: 3.157 billion).
During 2004, management control of HBL was transferred to Aga Khan Fund for Economic Development, S.A. (AKFED). The results for the quarter ended March 31, 2005 are under the 'new' management while the results for the corresponding quarter of last year were largely under the 'old' management.
During the quarter under review, Total Assets of HBL witnessed an increase of only 1 % to Rs 493 billion on March 31, 2005 as compared to Rs 487 billion as at December 31, 2004.
In the same period Investments declined by 4 % from Rs 134 billion (28% of Total Assets) to Rs 128 billion (26% of TA) whereas Advances saw an increase of 4 % from Rs 258 billion (53% of TA) to Rs 268 billion (54% of TA). The increase in Total Assets was made possible through 2 % increase in deposits from Rs 405 billion to Rs 411 billion over the period under review. Total Liabilities and Deposits at 94 % and 83 % of Total Assets respectively are high whereas Shareholders' Equity is only 6%. NPLs decreased during the quarter from Rs 44.5 billion as on December 31, 2005 to Rs 42.9 billion, primarily due to cash recoveries.
Under Contingencies and Commitments it has been noted in the financial statements that HBL makes commitments to extend credit in the normal course of its business but none of these commitments are irrevocable and do not attract any significant penalty or expense if the facility is unilaterally withdrawn. The management is urged to review this approach to make it equitable.
Profitability-wise the quarter under review has been good for HBL. Mark up income increased by 51% to Rs 5,831 million from Rs 3,862 million for the corresponding quarter last year. Mark up expenses increased but only 29 % and thus raising the net mark up income to Rs 4,488 million for the quarter under review from Rs 2,819 million- an impressive increase of 59%. As against this, the fee income declined by 24% from Rs 2,110 million for the first quarter of 2004 to Rs 1,601 million for the first quarter of 2005. Despite this setback, total net income saw 36 % increase from Rs 4,375 million for the first quarter of 2004 to Rs 5,944 million for the quarter under review. Due to charging of Rs 2,100 million additional one-time cost of voluntary separation scheme, the profit before tax for the quarter under review was Rs 515 million as against Rs 1,302 million for the corresponding quarter last year. The cost savings due to reduction in staff will benefit 2005 and beyond. Performance statistics are enclosed.
The Directors reviewing the Outlook feel that while there will be the challenge of enhanced funding costs and low credit off-take due to rising interest rates, HBL will continue to respond to these challenges by proactive management and identifying new opportunities. Implementation of new initiatives on the technology side, according to them, will improve operational productivity, enhance customer service operations, deliver meaningful management information, and enable relationship management of clients' base.

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Consolidated Accounts                         (Rs in million)

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Performance Statistics             (Un-audited)     (Audited)

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Balance Sheet (As on March 31)             2005          2004

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Total Assets:                           493,202       486,982

Cash, Balances with Banks:               65,242        65,356

Investments-Net:                        128,592       134,541

Advances-Net:                           267,643       258,306

Deposits, Other Accounts:               410,897       404,629

Total Liabilities:                      461,409       455,518

Minority Interest:                          275           276

Share Capital:                            6,900         6,900

Reserves, Retained Earnings:             16,407        16,191

Surplus on Revaluation of Assets:         8,211         8,097

Total Equity:                            31,518        31,188

Subordinated Loan:                            0             0

Equity and Sub. Loans:                   31,518        31,188

Contingencies and Commitments:          199,862       228,463

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Ratios:

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Cash and Bank/Total Assets:                 13%           13%

Investments/Total Assets:                   26%           28%

Advance/Total Assets:                       54%           53%

NPLs/Advances-Gross:                        14%           15%

Provisions/Advances - Gross:                11%           11%

Provision Required/Provision Held:         100%          100%

Deposits/Total Assets:                      83%           83%

Total Liabilities/Total Assets:             94%           94%

Total Equity/Total Assets:                 6.4%          6.4%

Equity and Sub. Loans/Total Assets         6.4%          6.4%

Deposits/(Equity + Sub-Loans)- X:         13.0           13.0

Advances/Deposits:                          65%           64%

Investments/Deposits:                       31%           33%

Conting. & Comm./(Equity + SL) -X:         6.34          7.33

Book Value Per Share:                     45.68         45.20

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Income Statement  (Quarter Ended March 31) 2005          2004

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Markup/Interest Earned:                   5,831         3,862

Markup/Interest Expensed:                 1,343         1,043

Net Markup/Interest Income:               4,488         2,819

Net Mark up Income After Provision        4,343         2,265

Total Non-Markup Income:                  1,601         2,110

Net Markup, Non-markup Income:            5,944         4,375

Admin Expenses, prov. and VSS:            5,429         3,073

Profit Before Taxation:                     515         1,302

Profit After Taxation:                      402           947

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Ratios: (Quarterly basis)

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Net Markup Income/Total Assets:            0.9%          0.6%

Net markup Income After Pro./TA:           0.9%          0.5%

Non-Markup Income/Total Assets             0.3%          0.4%

Net markup, Non-Markup Income/TA:          1.2%          0.9%

Admin expense & VSS /Total Assets:         1.1%          0.6%

Profit Before Taxation/Total Asset:        0.1%          0.3%

Profit After taxation/Total Assets:        0.1%          0.2%

Profit After Tax/Total Equity:             1.3%          3.0%

EPS-(Q-end paid up capital) - Rs:          0.58          1.37

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Cash Flow Summary                             (Rs in million)

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Net Cash flow from operations:             -747          -632

Net Cash flow from Investing:               633           613

Net Cash flow from Financing:                 0             0

Net Cash flow Position for Period:         -114           -19

Cash and cash equ. at end of Period:     65,242        47,933

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