HBL reported a flat topline growth in 9MCY17. That is a decent effort for most banks in times of falling interest rates and thin spreads. NIMs were flat too, another decent effort. Post provisioning mark up income was also flat. Job well done. Non mark-up income shaped up well, to more than make up for flat topline numbers. Paid almost similar amount in taxes as it did last year same period. But profits were down 16 times.
Oh and did someone say elephant in the room? HBL paid a hefty sum in unusual/extraordinary items to settle the Ney York State Department of Financial Service' penalty. That proved enough to tank the bottomline. Little wonder that the board decided not to declare interim cash dividend for the third quarter, to bring the bank close to its previous capital adequacy levels.
There is little denying that such a massive dent has surely impacted the bank's CAR for the worse at 10.6 percent as at September end. HBL might continue avoiding dividends for at least another quarter, besides other measures to restore previous CAR levels. All said, HBL still boasts of a comfortable adequacy ratio, comfortably clear of the regulatory requirements.
It is hard to talk about anything else when the extraordinary item has singlehandedly delivered such a telling blow. But HBL has not done half bad in terms of expanding its asset base, which was, positively surprising, led by a 14 percent growth in advances over December 2016. The ADR as a result, slightly moved up to 42 percent. Investments in government securities went on at a steady pace. Although the enthusiasm seems to have died of late, as the yields on short-term papers are not as lucrative. Yet, there is no better way to safely park the excess liquidity than in sovereign guaranteed bonds. Little wonder that two-thirds of topline continues to stem from investments. That is not necessarily a good or a bad thing though, especially if it keeps the topline churning and the loan book clean.
On the liability front, deposit growth was checked at 7 percent over December 2016. That seems to be more by choice, as HBL seems rather focuses on adding low cost current account deposits and improving CASA. It now has one of the best CASA ratio in the industry at 87.4 percent, and promises to serve it well, should spreads continue to remain thin.
HBL's infection ratio is in single digits, and is well provided for. NPLs are on the mend. Deposits are growing in the right direction. Should the opportunity of genuine private credit arise, HBL would surely not shy away from lending, as it seems to have most bases covered. But red flags have been raised, and that could result in higher costs in coming times, especially in terms of compliance and technology. Paying off Rs23.7 billion as penalty, was not, a trivial affair after all.
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