HBL was established in Pakistan in 1947 as the first commercial bank. Over the period, the bank has grown staggeringly to become the largest private sector bank with over 1500 branches and 830 ATMs across the country and a customer base of over five million customers.
The bank was privatised in 2004 with major ownership stake and management control held by Aga Khan Fund for economic development (AKFED). HBL has its presence in 25 countries besides having its subsidiaries in Hong Kong and the UK, affiliates in Nepal, Kenya and Kyrgyzstan and representative offices in Iran and China. HBL has the largest Corporate Banking portfolio in the country with an active Investment Banking arm. Moreover, SME and Agriculture lending programs and banking services are offered in urban and rural centers.
Performance Snapshot, CY15:
Pakistan's largest commercial bank, HBL in CY15 showed how a big balance sheet can be translated into exemplary profit numbers despite tough conditions for the banking industry. Recall that the banking spreads have squeezed significantly of late and effective taxation is also higher after the imposition of super tax and higher tax incidence on dividend income. But the strength driven from the non-core income, mainly gain on sale of securities has proved to be more than sufficient for HBL to help post sizeable profits.
The top line grew modestly in CY15- understandably so as the interest rates have fallen remarkably. But a rapidly growing balance sheet ensured there was growth at the top nonetheless. No marks for guessing, the bulk of mark-up income came from investments in government securities. That the IDR has gone up to as high as 76 percent tells why banks are not too worried about lending aggressively - when even not-so-lucrative yields on government papers are doing the trick.
Investments had gone up by 35 percent as at December end 2015 over December 2014 and advances in absolute terms inched up by just 6 percent for the same period. The ADR stood as low as 39 percent - lowest among similar sized banks. Deposits have not grown briskly, but deposit growth alone has not been HBL's focus of late. The focus is on adding the right mix of deposits and the improved CASA ratio over the years tells how much has HBL improved in this regard.
Provisioning charges for the year were considerably higher, but the overall picture on NPLs is improving and the bank has also bettered the coverage ratio. The infection ratio has come down to 12 percent, while the coverage ratio has improved to a very sound 90 percent. The administrative expenses went significantly up during the year, but the cross selling earnings from bancassurance, brokerage, commission and sale of securities - offered enough to further improve the cost to income ratio.
HBL's balance sheet is in a very sound shape and the financial performance and adequacy indicators read a good story. The investment arm is functioning well, deposit mix is being corrected and NPLs are sliding.
Future Outlook:
Interest rates may well have bottomed out, but a journey up north may not come that soon either. Inflation has eased out quite a bit in the recent past and Pakistan is all set to beat the inflation target for the fiscal year. Lower interest rates also pose a challenge and an opportunity at the same time - in form of lower yielding government securities and a chance to start lending aggressively.
Whether or not HBL takes that route is anyone's guess. If one goes solely by numbers, HBL does not seem compelled to alter its asset mix just for the sake of it.
But something has to give as the bonanza of PIBs and treasury bills and the resultant gains on sale of the same securities cannot go on forever. With economic activities picking up at home and the entire feel-good factor about CPEC - HBL would do well to gradually start expanding its advances portfolio.
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