Bank: HABIB METROPOLITAN BANK - Analysis of Financial Statements - Financial Year 2010
Habib Metropolitan Bank was incorporated in Pakistan as a Public Listed Company in 1992 under the name, Metropolitan Bank Limited. The Bank commenced, duly licensed, full scheduled commercial-banking operations in October 1992.
================================
SYMBOL : HMB
PRICE : Rs 18.01 (30th May 2010)
================================
Metropolitan Bank, from October 1992 to September 2006, remained a highly rated bank and, vide it's nationwide 143-branch on-line network, established as a distinguished provider of trade finance services.
On October 26, 2006 Habib Bank A G Zurich`s Pakistan Operations merged into Metropolitan Bank Limited and the merged entity was named Habib Metropolitan Bank Limited (HMB). Demonstrating a strong commitment to Pakistan economy, HBZ is the principal shareholder of HMB.
HMB operates in all major cities of the country. The Bank ranks within Top 10 in Pakistan with a strong vision to be the most respected Financial Institution. HMB has its primary focus on retail banking and trade finance and also offers highly innovative E-Banking solutions and Consumer Banking to its customers. The Bank's Islamic Banking Division is fully capable of catering to customers seeking Shariah compliant products.
The HBZ Group is heir to a rich tradition of banking and commerce dating back to more than 160 years. The group's flagship and HMB's principal, HBZ (incorporated 1967) enjoys International ranking of 687 in terms of capital. With Headquarters in Switzerland, the HBZ Group also operates in Hong Kong, Singapore, United Arab Emirates, Kenya, South Africa, United Kingdom and North America.
The Pakistan Credit Rating Agency (PACRA) has allotted both long-term and short-term ratings of Habib Metropolitan Bank Limited at "AA+" (Double A plus) and "A1+" (A one plus), respectively. These ratings, being the highest amongst the local sector Private Banks, denote a very low expectation of credit risk emanating from a very strong capacity for timely payment of financial commitments.
FISCAL YEAR 2010 RESULTS:
HMB's gross revenues for FY10 went up by 11% to Rs 27.8 bn. While the profits before provision went upto Rs 7.1 bn compared to the Rs 6.8 bn in the last fiscal year. However due to the rise of Rs 4.6 bn in the provision for Non Performing Loans, the banks post tax profits stood at Rs 2.8 bn compared to the Rs 2.7 bn last year. PAT grew by just 3.7% compared to an industrial average of 15%.This led to an EPS of Rs 3.23. HMB's rise in NPLs is quite contrary to the industry trend that shows increasing profits on back of higher interest income and lower provisioning against NPLs.
Despite the rising competition in the banking industry, HMB has shown steady growth in FY10. Its total assets went up to Rs 252 bn. Advances went up to Rs 120 bn, while the investments went up to Rs 101 bn. The bank had a net equity of Rs 20.3 bn with a capital adequacy ratio of about 10.6% against the 10% required in the industry. It is noteworthy that the CAR has actually reduced in FY'10 as compared to CAR of FY'09.
Interest income in FY10 went up to Rs 23 bn compared to Rs 21 bn last year. However the interest expenses have shown similar trends, going to Rs 16.4 bn compared to Rs 14.66 bn last year. This resulted in the net interest income rising by 3.5% to Rs 6.95 bn. The non-interest income went up Rs 4.43bn compared to Rs 3.7bn last year. Fee, commission and brokerage fee contributed about 35% to the non-interest income, while 40% was from income from exchange. Non-Interest expense went up from Rs 3.62bn in FY09 to Rs 4.30 in the FY10, 91% of which included the administrative expenses. Salaries and allowances made up 40% of the administrative expenses while rent, taxes, electricity etc took up 25%.
HMB's deposits jumped 12.6% to Rs 160 bn compared to Rs 142bn in FY09. In contrast, deposits in the industry grew at an average rate of 15%. While the bank's borrowings decreased significantly to Rs 62 compared to Rs 68 bn in FY09. The bank had a CASA ratio of 46.8% compared to the CASA ratio of 53% in FY09. This was way below the industrial average of 69%. The bank should improve its CASA ratio to gain more advantage of cheaper deposits.
HMB's net advances went up to Rs 120 bn compared to Rs 102 bn in FY09. This shows a 17% rise, compared to the average industrial rise in advances of 1%. Rs 100 or 83% of the advances went out to loan borrowing, credit card owners etc while the rest was distributed among Ijarahs.The bank's investments fell down to Rs 100 bn from Rs 111 bn in FY09, showing a fall of about 10%. Its total assets went up Rs 252 in FY10 compared to the Rs 237 bn in FY02. The advances to deposits ratio went up to 75% from 71.8% in FY09 due to the huge rise in advances.
Unlike HMB's profits and assets, its market price has not shown a rising growth trend. This reflects the low expectation from the investor's side. The bank also announced a 20% bonus share dividend (20 for every 100) for the FY10.
As seen in the table below, HMB's FY10 show a mix result when compared to the industry figures. HMB's needs to increase its investments as well as improve the CASA ratio to earn the advantage of cheaper deposits. Also the bank needs to cut back on the rising costs to improve its profitability figures as well.
======================================================
Growth Rates HMB Industry Averages
======================================================
2009 2010 2009 2010
======================================================
Profits After Tax 16.8% 3.7% 26.07% 15%
Advances -5% 17% 4.2% 1%
Deposits 11% 12.6% 10.03% 15%
Investments 108.2% -10% 33.53% 35%
CASA Ratio 53% 46.8% 68% 69%
======================================================
ECONOMIC OVERVIEWFOR FY10:
The year of 2010 began well and Pakistan seemed to be on the way to a steady economic recovery withGDP rising at the close of FY2010 (June). GDP growth was primarily due to a recovery in the manufacturingsector. Inflation had also remained under control and the trade deficit improved. The Current Account deficitalso improved notably with the Country's FX reserves continuing a steady increase and Home Remittancescontinued to pour into the system. The Pak rupee remained stable throughout the year, slightly depreciatingagainst US $. Finally, international credit rating agencies upgraded Pakistan from CCC plus to B Minus byS&P, while Moody's revised its outlook to positive.
However, Pakistan suffered the worst floods in its history in the middle of 2010. Approximately 4.5mn acres weredamaged and over 10 million people were left homeless and without any means of support. Economiclosses of US $3-4bn in the agriculture sector (22% of GDP) and US $9-10bn in total for an economy sizeof around US $180bn meant that the Country suffered significantly. There was massive damage to cotton& rice crops as well as livestock, and infrastructure (bridges, roads and villages) built up over decades has been damaged and all will now need reconstruction, putting considerable pressure on the nation's resources.
Despite all these problems, the underlying strength of the economy is apparent. Home remittances remain strong at the end of the year, as do FX reserves, and our current account deficit improved and became zeroas of December 31, 2010.
The Country's Stock Exchanges have managed to regain investor confidence and the market index reflects a positive sentiment. Monetary policy remained tight over the course of the year, and the SBP increased discount rates by 150bps in three stages to 14%. Market conditions resulted in an industry wide halt in consumer financing whilecredit off-take by the private sector remained under pressure.
PROFITABILTY:
HMB had a gross revenue of RS 27.8 bn in FY 10 compared to the gross revenue of Rs 25.1 bn in FY09. This shows a rise of about 11%. This 11% rise was supported by a 7.5% rise in interest income which went up Rs 23.38 bn from Rs 21.76 bn in FY09. Interest expenses also went up from Rs 14.66 bn in FY09 to 16.43 in FY10. This leaves a net interest income before provision of Rs 6.94 bn for FY10 compared to Rs 6.71 bn in FY09. After subtracting the provision for NPLs and for investments, the bank had a net interest income of Rs 3.90 bn compared to Rs 4.14 bn in FY09. This shows a fall of about 6%.Interest income stood at 2.75% of the total assets, compared to 2.82 in FY09. This was due to the comparatively higher rise in average total assets and the inability of the interest income to meet that rise.
HMB witnessed a 19% rise in non-interest income which went up to Rs 4.42 bn from Rs 3.70 bn in FY09.However non-interest expenses went up by 18.7% as well, which resulted in the net non-income falling to Rs 4.02 bn compared to Rs Rs 4.21 bn in FY09.The non-interest to average total asset ratio was the same at 3.33%.
HMB had profit after taxation of Rs 6.59 bn compared to Rs 5.82 bn in FY09. This shows an increase of about 13% in PAT. EPS was Rs 3.23 per share.
LIQUIDITY:
HMB has shown comparatively better performance in liquidity compared to profitability. Advances increased by 17.1% to reach Rs 120 bn compared to Rs 102 bn in FY09. This was an excellent performance in comparison with the industry rise in advances of 1% in FY10. Deposits on the other hand moved up by 12.6 in FY10 to Rs 160%. However the industrial deposit figure has gone up by an average 15%, which shows the potential sources of deposits including the cheap ones available in the market. The advances to deposits ratio stood at 74.7% compared to 71.8% in FY09. This was due to the higher rise in advances compared to the deposits.
The bank had a CASA (Current And Saving Account) ratio of 46.8% in Fy10, compared to 53% in FY10. This is way below the industry average of 69%, signally an area of improvement.
HMB's earning assets went up by 3.1% to Rs 220.8 bn compared to Rs 214.1 bn in FY09. Its total assets went up by 6.2% to Rs 252 bn in FY10. This led to the earning assets to assets ratio of 87.6% compared to 90.2% in FY09. This was due to the higher rise in total assets compared to the rise in earning assets.
EARNING RATIOS:
HMB had a average interest earning assets of Rs 198 bn in FY10 compared Rs 188 bn in FY09, showing a rise of about 5.3%. Also the bank had an interest income of Rs 23.38 bn compared, Rs 21.3 bn in FY09. This gives a yield on earning assets of 11.8% compared to 11.4% in FY09.
HMB had average interest bearing liabilities of Rs 146 bn compared to Rs 135 bn in FY09. This shows a rise of about 8.3%. Also the bank had interest expenses of about Rs 16.4 bn compared to Rs 14.66 bn in FY09. This resulted in the cost of funding earning assets of 11.2%, compared to 10.8% in FY09. All in all, the bank had a steady net interest margin figure, which stood at .6% compared to 0.5% in FY09. The figure is drastically low keeping in mind the industry average of 6-7%.
ASSET QUALITY:
2010 was a difficult year for banks in terms of asset quality as due to rising inflation and floods, non performing loans reached the highest figure ever of Rs 500 bn. This was partly due to the losses in floods as agriculture is a major borrower. HMB's non performing loans figure touched Rs 13.886 bn, compared to Rs 6.36 bn in FY09, showing a rise of about 18.1%. This was mostly due to the post-recession effect as many borrowers are unable to pay back their loans. There has been a major increase in NPLs in the consumer and commercial business and this factor has affected the profitability of the bank.. NPLs have risen mainly in the agriculture and consumer sectors.
HMB has taken notice of the deteriorating asset quality and taken measures to improve the risk management, control and collection systems. New policy initiatives have been implemented for assessing debt burden and repayment abilities of customers together with more stringent credit verification processes. The bank is allocating more resources towards the collections area and recovery lines.
Non-performing loan to advances ratio went up to 11.6% compared 6.22% in FY09. This was due to the huge rise in NPL figure in FY10.
MARKETABILITY:
As we can see from the graph above, HMB's performance in KSE has not been that impressive and does not reflect the trend shown by its profitability figures. Its price started at Rs 32.17 and ended at Rs 28.99 in FY10. It had a highest closing price of Rs 33.78 and lowest price of Rs 18.65, with an average price of Rs 24.3. This shows a Price Earning Ratio of 7.52x. The company also announced a bonus share dividend of 20% (20 for every 100).
FUTURE OUTLOOK:
Even though macroeconomic fundamentals have improved, the country's manufacturing and export activitywill continue to remain under pressure, however, certain sector do show good prospects. The energyshortage issue remains a fundamental detriment to economic growth for which various short and long-termmeasures are being taken by the Government. This is a matter of utmost priority as the rising cost of inputsneeds to be kept under control for the bank to compete in international as well as local markets. The economy is also facing severepressure due to the ongoing war against terror in the North and the remaining rehabilitation of InternallyDisplaced Persons (IDPs). Inflationary pressures combined with the weak fiscal position are expected toresult in a continued tight monetary policy in future. The reconstruction and rehabilitation of the flood affectedareas will also have an effect on the economy for several years.
COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].
Comments
Comments are closed.