HMB delivers another strong quarter

Habib Metropolitan Bank (HMB) announced 1HCY21 financial results last week continuing with the profit growth trajectory of 1QCY21. The result was accompanied with first interim cash dividend of Rs2/share, as after-tax profits soared by a massive 51 percent year-on-year. HMB’s profitability template has been different from the bigger size banks, as core income remains at the forefront of bottomline growth.

The markup earned shrunk owing to significant changes in average interest rates from last year, despite significant volumetric expansion in earning asset size. The asset base expanded by a significant 27 percent from June 2020, and 14 percent over December 2020, at Rs1.15 trillion.

The asset based understandably and much in line with the industry trend, continued to remain investment dominated. The investment portfolio at Rs655 billion was 12 percent higher over December 2020, and 33 percent higher year-on-year. The investment to deposit ratio stood at 86 percent - strikingly like the same period last year. Government securities have been the preferred parking lot for quite a while, across the industry, regardless of size. The average yield on the risk-free investment has not been that bad either, and it is a no-brainer for HMB and the likes to run a high IDR.

The advances also increased at 12 percent over December 2020, whereas the year-on-year growth was 20 percent, as the portfolio stood at Rs350 billion. The advances to deposit ratio stood at 46 percent – similar to the ADR reported in the same period last year. Economic activities have undoubtedly picked up from last year and should ideally lead to more genuine credit appetite going forward. One must not forget that Covid related restrictions have been making varying degrees of comebacks, and that hinders the credit demand, for a bank that focuses heavily on the trade segment.

On the liabilities front, the 14 percent growth over December 2020 beats industry average growth. HMB’s deposit base stood at Rs764 billion as at June end 2021, up 27 percent over June end 2020. Looking at the markup expensed for the period, it appears HMB has continued its journey towards improvement in CASA, which had stood at 62 percent by end of 1QCY21. That said, the Bank has a long way to go to match the high CASA of the bigger banks, to get the cost of deposits