HBL, Pakistan’s largest commercial bank, posted a stellar Rs120 billion in full-year pretax profits for CY24, up 6 percent year-on-year. With a final dividend of Rs4.25/share, the full-year payout reached Rs16.25/share. The road to record profitability got more challenging towards the latter half of the year, but HBL had enough gas in the tank to cross the finishing line, strong non-core income growth largely offset the drop in Net Interest Margins resulting from a sharp dip in interest rates.
The balance sheet footprint grew 9 percent over December 2023 to an unmatched Rs6.1 trillion. On the asset front, investments continued to lead the way – but only just, having registered a 1 percent decline over last year. The sharpest retreat came in 4QCY24 as the entire industry underwent a significant asset re-profiling. The investment portfolio saw a massive 20 percent decline over the end of the previous quarter – a fall of Rs 650 billion. The Investment-to-Deposit ratio at 58 percent is the lowest in recent memory.
On the other hand, advances grew appreciably over last year – registering a 31 percent increase to Rs2.4 trillion. It is after a very long time that the advanced portfolio is now almost at similar levels to that of investments – having closed the gap entirely during 4QCY24. As the interest rates went down, and banks rushed to avoid the higher taxation incidence in case of lower ADRs – there were plenty of takers for cheap credit across sectors, most noticeably in the corporate, commercial category.
The category breakdown of advances goes on to show how banks found ways to up the ante in an effort to keep the ADR clear of 50 percent by the cut-off date. Traditionally, not a huge area of lending, financial institutions constituted 11 percent of the advances at the end of CY24. The absolute increase was Rs219 billion, up from just Rs52 billion at the end of 2023 to Rs271 billion at the end of 2024. The corporate, commercial segment also showed impressive growth, retaining the share at around 55 percent of advances, up 31 percent from last year. Consumer, SME, and agriculture lending grew by a modest Rs30 billion over last year, with the share in advances down to 12.5 percent. With the consumer and agriculture portfolio making up nearly 80 percent of the segment lending – SME lending at Rs62 billion remains well under 3 percent of total lending.
On the liabilities front, while the deposits at Rs4.4 trillion represent a modest 5.5 percent increase over December 2023– the real story was HBL shedding close to Rs400 billion in deposits during 4Q alone.
The CASA ratio continued to improve reaching nearly 90 percent has been continuously improving and recorded 87.3 percent, with the growth entirely led by low and no-cost deposits. Non-markup income made the real difference in keeping the cost-to-income ratio steady, as asset reshuffle meant there were gains to be had on investments in government securities.
Another massive contribution came from gains realized on the closure/sale of branches. The usual suspects - card business, commission income, and merchant discounts all continued to contribute steadily towards non-markup income.
The lending bonanza will almost certainly come to an end for 1QCY25 and there are early signs of that in the latest advanced data released by the central bank. More asset re-profiling will be on the cards for the first half of 2025 and the balance sheet by the end of 1Q CY25 could look entirely different from what it is today, just as today’s is markedly changed from the previous quarter.
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