Pakistan’s largest commercial bank, HBL continued its merry way of raking in another quarter of stellar profits, breaking another record in the process, while maintaining a strong dividend payout. The Bank announced its 1HCY24 financial results yesterday, registering an impressive 12 percent year-on-year growth in pretax profits, led largely by a volumetric expansion in the asset base, strength of non-core income, and control over operating expenses.
The Bank’s balance sheet continued to expand – having increased to a colossal Rss6.2 trillion. The asset base grew largely on the back of the investment portfolio – where tenor re-profiling continued. Investments reached Rs3.17 billion – up a staggering 24 percent (Rs80 billion) over December 2023. The Investment to Deposit ratio, as a result, soared to 66 percent. HBL is the biggest commercial sector lender to satiate the government’s seemingly never-ending quench for bank borrowing. Lucrative sovereign yields for the best part of 1HCY24 made the decision to lend to the government rather straightforward.
Growth in credit appetite from the private sector continues to be non-existent – as the advances portfolio dipped 4 percent from December 2023, registering a dip of Rs82 billion. The corporate, commercial, and investment banking segments saw the biggest drop in advances. Consumer, SME, and agriculture lending accounts for the second highest contribution to advances. The advances to deposits ratio (ADR) stayed under 37 percent – down over 8 percentage points over December 2023– and the lowest in a very long time.
On the liabilities front, deposits are nearing another milestone of Rs5 trillion – having crossed Rs4.8 billion by the end of 1HCY24. The deposit base expanded appreciably by 17 percent over December 2023, as another Rs700 billion were added to deposits – surpassing the industry growth trend, and further consolidating the status as deposit leader in the industry with a 13 percent share. It is stating the obvious, but the bulk of the increase came in the low to no cost current and saving deposits – as the CASA ratio improved further to 87 percent, up from 81 percent as of December end 2023.
HBL’s fee income continued to highlight non-mark-up income that went up a massive 64 percent year-on-year. The bank kept a lid on operating expenses despite persistent inflationary pressures – leading to a visible improvement in the cost-to-income ratio improved by 50 basis points from the same period last year to 56.7 percent. The NPLs inched up a little from December 2023 – but there are no alarm bells yet, as the infection ratio stays around 6 percent – and is adequately provided for.
The interest rate cycle reversal has just started but may not lead to an immediate change in advances portfolio, as the large-scale sector is still struggling to post meaningful growth. How the government keeps up with its fiscal targets will largely determine crowding out of the private sector for the second half of 2024. Recent rounds of energy subsidies indicate the fiscal side will remain under pressure and nothing short of a stringent IMF program will bring fiscal discipline back. Without this, the ADR will likely continue to remain suppressed – even if it comes with higher taxation.
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