Bank Al Habib – sound and steady

Bank Al Habib Limited (BAHL) continued to consolidate, posting a 6 percent year-on-year increase in after-tax profits. The asset base expanded by 22 percent to Rs1.9 trillion, over December 2020. Unlike its bigger sized peers, BAHL’s asset growth was not confided to investments only, as advances went up by a massive 29 percent to Rs659 billion over December 2020.

That said, investments continue to form the bulk of assets, with government securities taking the major chunk. BAHL’s investment portfolio closed at Rs935 billion by the end of September 2021, with an impressive 22 percent growth over December 2020. The volumetric expansion in asset base was not enough to result in growth in markup earned, as the average yields on earning assets went considerably down from the same period last year.

The non-funded income once again proved vital, with a 37 percent year-on-year growth. The increase was witnessed across all income streams, with fee and commission income leading the way with more than two-thirds contribution to non-markup income. Favorable exchange rate movement with prudent management led to higher foreign exchange income during the period.

The administrative expenses growth was on the higher side in double-digits, taking cost to income ratio down from the same period last year, as BAHL continues to expand its operations across the country. The biggest impact was made by provisioning charges, where reversals were booked versus a massive Rs3.5 billion charged in 9MCY20. The prudent financing strategy ensured the NPL ratio fell further to under 1 percent, with adequate coverage in excess of 190 percent.

On the liabilities front, the deposit base increased by another 15 percent over December 2020 to Rs1.27 trillion. BAHL has been striving to improve its CASA ratio and match that of the big league. There is ample room for BAHL to improve the deposit mix which sits in the high 60s. The ADR at 53 percent is much improved from last year, and higher than the big-5 banks.

As the interest rate cycle looks set to reverse, asset reprofiling seems in order. BAHL has so far done well on the advances front, but this could be put to test going forward, as genuine credit appetite may well be challenged.