Bank Al-Habib Limited provides various financial products and services in Pakistan. It offers consumer, commercial and Islamic banking services. Its commercial banking services include current and deposit accounts for corporate and individual clients; foreign currency accounts; finance through loans and other credit facilities to the corporate, private, and public sectors; short term finance of foreign trade through letters of credit and negotiation of bills of exchange; and issuance of guarantees, bid bonds, and performance bonds.
The company's commercial banking services also include acceptance and placement of funds in the interbank market; purchase and sale of foreign currencies; trade information and research; remittances and transfer of funds; purchase and sale of government securities; Sui gas bills collection; and MCB rupee traveler cheque services. The company's consumer banking products and services comprise agricultural, auto, home, home buying, home construction, and home improvement loans.
The company's Islamic banking products and services include various deposit schemes, such as current accounts, savings accounts, and term deposits; and Islamic finance and leasing services for individual/traders/industries. In addition, it offers investment products and services, which consist of PLS savings accounts and monthly profit plans, term deposit accounts, AL Habib growth certificates, and super savings accounts. Further, the company offers online banking, safe deposit boxes, ATM cards, debit cards, tele banking, electronic funds transfer, remittances, life insurance, and cash management services.
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COMPANY SNAPSHOT
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Name of company Bank Al - Habib Limited
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Nature of Business Banking
Ticker BAHL
Net Premium CY '07 Rs 6,247,739,000
Net Premium CY '08 Rs 7,851,991,000
Share price (avg.) Rs 26.48
Market Capitalization 12671712720
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The Bank recently opened its 200th branch in Lahore on 25th June, 2008. Currently, the bank has a network of 203 branches consisting of 202 branches in major cities and towns of Pakistan and a wholesale branch in the Kingdom of Bahrain. The Bank also intends to open more new branches during the year 2008 as per its branch expansion policy. Bank Al Habib was incorporated in 1991 and is headquartered in Multan, Pakistan Credit Rating Agency Limited (PACRA) has maintained the Bank's long term and short term entity rating at AA (Double A) and A1+ (A One plus) respectively.
RECENT RESULTS H1'09:
Interest income increased by 67% to be Rs 10.6 billion, while the interest expense grew at a faster pace of 83%. The net mark-up interest income after provisioning increased by 44.9%. The non-mark-up interest income decreased by 26% due to a decline in dividend income and a decline in income from dealing in foreign currencies. PAT was recorded at Rs 1384 million, an increase of 10.8%. The deposits increased to Rs 171.7 billion as compared to Rs 144.4 billion on December 31, 2008. The highest increase in deposits is in term deposits and saving accounts signifying an increase in interest expense in the future.
In the same period, advances increased to Rs 103.7 billion from Rs 100.2 billion, while investments increased to Rs 75.2 billion from Rs 48.2 billion. The trend in investments is in line with the overall trend in the industry along with government's tendency to over shoot its budgeted borrowing targets. Foreign Trade Business volume has also been satisfactory, considering the prevailing global and domestic economic conditions. The pre-tax profit of the Bank for the half year ended June 30, 2009 was Rs 2,197.6 million as compared to Rs 1,830.4 million during the corresponding period last year.
BANKING SECTOR UPDATE:
Our banking sector is quite resilient and has been able to withstand different types of market shocks and adverse macro economic conditions. This capability has been achieved through continuous financial reform process distinctively pursued during the past few years. Therefore, there should not be any cause of concern about the stability of the banking system in the near future. The banking sector has strong capital adequacy ratio which is well above the minimum requirement. CAR stood at 12.1 percent as of Jun,08 which is well above the international benchmark. Similarly, NPLs ratio and NPLs to capital ratio is also quite low and within acceptable ranges.
This is mainly because banks in Pakistan focus largely on conventional lending and not into sub-prime credit lending. SBP prudential regulations prohibit banks from clean lending and investment in low quality assets. Liquidity package worth Rs 270 billion was made public fortnight ago. Amendment in the Advances to Deposit Ratio (ADR) has enhanced the banks' existing lending capacity to Rs 550 billion as the average of advance-to-deposit ratio has dropped from 75 to 57 percent. Banks were facing huge liquidity shortage for last two months due to the tremendous withdrawals of cash from banks in the wake of default remorse, as a result of which the overnight rate reached new peak of 40-48 percent in the domestic market.
To meet the banks' liquidity requirements, the SBP has reduced the CRR up to 5 percent besides exempting the time deposits of 1 year tenor and above from Statutory Liquidity Requirements (SLR). The current mover of central bank would inject a liquidity of Rs 30 billion in the banking system easing them to meet their customers' demand, while cumulatively with SBP's current and previous moves will have released liquidity of Rs 270 billion in the banking system.
ANALYSIS OF FINANCIAL PERFORMANCE
The profitability of BAHL has declined over the current year CY'08. The Profit After Tax rose by 15.90% while assets, deposits and equity rose by 25.46%, 25.71% and 38.81% respectively. In CY'08, the interest income was the major contributor to the profits and showed an increase of 32.54% while non interest income grew by 12.56%. Net markup interest income has increased by 57.88%. Bank Al-Habib's return on assets is below the industry averages reflecting lower profitability as compared to industry. Similarly, company's ROE has been way above the industry averages showing its leveraged position.
This is clearly reflected in a very high deposit to equity multiple of 12.36 percent as compared to industry's 8.21 percent in the CY'08. The bank's performing advances were higher this time. Though the yield on the earning assets grew, this was offset by a higher cost of funding. In spite of that and the decline in banking sector spread, the bank's profitability picture remained positive, indicating that the bank has prudent policies in place for handling its deposits, advances and investments. Bank's EPS has slightly increased from Rs 4.59 in CY'07 to Rs 4.95 in CY'08. The earning assets of the bank have been growing all throughout.
Higher deposits are being streamed into greater advances, lending, and investments especially. Bank's investments constituted about 32 percent of earning assets in the CY 08 as compared to 30 percent in the FY 07. This is mainly due to significant investment made in different government securities and Term finance Certificates in the FY08. Composition of the earning assets shows greater investments than advances which shows that the trend from CY'07 has continued. We expect this trend to increase further considering the higher NPLs to advances ratio and the worsening state of country's economy. Moreover, increasing investments in low-risky assets mean lower credit risk and better quality of assets.
The interest rate spread of the banking industry showed a declining trend in the CY08. Despite this trend, the performance of the bank showed more than satisfactory results. The liquidity profile of the bank shows comforting trend. The liquidity position of the bank has improved in general over the period under study. Bank's earning assets to total assets have grown at more than industry averages. Similarly, bank's Advance to deposits ratio has been declining marginally in the period under study. The ADR of the Bank has shown a decline over this period because of heavy growth in bank's deposits, outpacing the otherwise moderate advances growth rate resulting from a relatively prudent loans portfolio in 2008.
The deposit base rose in CY'08 due to SBP's regulation to offer higher return on deposits with the intention to reduce banking sector spreads and provide investors with a fair rate of return. The debt management of the bank shows a highly leveraged position as compared to industry averages. In CY'08, the Bank's Debt to equity and Debt to total assets ratio have declined but are still above the industry averages in the period understudy. This indicates that the bank is a highly leveraged institution with only a small portion of its assets constituting equity. Though the bank has made efforts to increase its equity to meet the SBP's minimum capital requirements, a large proportion of its assets remain debt financed.
Such high debt levels may expose the bank to excessive credit, interest and other risks. Moreover, maintaining such high levels of deposits against equity is also exposed to the danger of the bank experiencing a run on its deposits. Increasing the equity portion of the assets would provide a cushion against all such risks. The solvency ratios of the bank show somewhat similar trend. This trend may be attributed to the efforts of the bank in increasing its equity and it's earning assets. The equity to assets and equity to deposits profiles have remained rather constant over the last four years. Earning assets to deposits profile has shown a decline in CY'08.
The bank needs to increase its equity base and investments in government securities and other sectors of the economy. The Non-performing loans of the bank have somewhat remained constant for the last four years. However, NPLs to advances have shown a declining trend especially after 2006. This is mainly due to greater advances as compared to NPLs which is a welcoming trend as higher return may be generated from greater advances.
Bank's NPLs/Advances ratio and provision for NPLs have been lower than the industry averages. Lower provision on one hand may leave the bank with greater amount of assets for more productive uses but the bank should increase its provisions until the declining trend in the NPLs becomes more visible. The NPL provisioning in CY'08 was Rs 1.17 billion which is much higher than Rs 93 million in CY'07. The company paid out dividend of Rs 1.14 per share in CY'08 (CY'07: Rs 0.81). The dividend cover has declined to 4.36 and dividend yield has increased to 4.30%. This shows that the investor expectations have improved since CY'05. The current market price of the share as on 1st August 2009 is Rs 26.80. The prices were above Rs 50 per share in 2008. This is mainly due to economic recession and low activity on KSE. Also the financial turmoil persists globally.
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BANK AL-HABIB LIMITED
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In millions 2003 2004 2005 2006 2007 2008
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Balance Sheet
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Assets
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Cash and Balances with treasury banks 6,111 6,239 7,583 9,346 13,767 11,936
Balances with other banks 545 4,288 1,089 1,233 615 3,678
Lendings to financial institutions 470 2,471 3,353 6,579 4,112 295
Investments 14,109 14,414 19,758 21,023 35,278 47,967
Advances 35,232 47,367 55,304 70,796 79,240 100,217
Operating fixed assets 741 1,526 2,476 3,910 5,853 9,231
Deferred tax assets 0 0 0 0 0 0
Other assets 859 1,130 1,940 2,111 2,474 4,005
Total Assets 58,066 77,436 91,502 114,998 141,338 177,330
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Liabilities
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Bills payable 1,225 1,345 1,465 1,391 2,394 2,232
Borrowings 6,791 7,975 6,276 10,789 9,827 12,370
Deposits and other accounts 46,178 62,171 75,796 91,420 114,818 144,340
Sub-ordinated loans 0 1,350 1,349 2,088 2,848 2,847
Liabilities against assets 0 138 345 708 647 328
subject to finance lease
Deferred tax liabilities 316 296 255 371 560 734
Other liabilities 365 337 770 1,710 1,831 2,800
Total Liabilities 54,875 73,611 86,255 108,476 132,925 165,651
Net Assets -54,875 -73,611 -86,255 -108,476 -132,925 -165,651
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Income Statement
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Interest Income
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Mark-up/return/interest earned 2,403 2,432 4,936 7,858 9,946 14,604
Mark-up/return/interest expensed 1,132 962 2,144 4,078 5,765 8,003
Net mark-up/interest income 1,271 1,470 2,792 3,780 4,181 6,601
Net mark-up/interest 1,163 1,485 2,717 3,759 4,101 5,436
income after provisions
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Non mark-up/interest income
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Fee, commission and brokerage income 318 390 509 576 744 923
Dividend income 26 16 39 42 31 317
Income from dealing 187 203 301 467 533 1,009
in foreign currencies
Gain on sale of securities 0 0 28 84 598 -107
Unrealized loss on revaluation
of held for trading investments 0 0 0 0 2 0
Other income 0 0 178 194 239 275
Total non mark-up/interest income 1,431 870 1,036 1,363 2,147 2,416
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Non mark-up/interest expenses
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Administrative expenses 1,075 1,315 1,728 2,432 3,215 4,372
Other (reversals)/provisions/write offs 5 0 0 0 0 0
Other charges 1 1 2 0 0 2
Total non-markup/interest expenses 1,081 1,316 1,731 2,432 3,215 4,374
Profit before taxation 1,513 1,039 2,022 2,689 3,049 3,533
Profit after taxation 1,012 541 1,464 1,761 2,203 2,367
Basic/Diluted Earnings per Share 0 0 0 0 0 0
Dividend Paid 2 0 323 388 389 543
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Ratios
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Earning Ratios
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ROA 1.74% 0.80% 1.73% 1.71% 1.72% 1.49%
ROE 31.73% 15.42% 32.28% 29.93% 29.49% 23.56%
ROD 2.19% 1.00% 2.12% 2.11% 2.14% 1.83%
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Asset Quality Ratios
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Non Performing Loans 0.65 0.21 0.38 0.39 0.39 0.39
NPL to Advances 1.83% 1.03% 0.57% 0.61% 0.40% 0.30%
Provisions to NPL 0.48 0.57 0.67 0.60 0.71 1.19
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Market Value Ratios
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Price to Earnings 4.72 16.98 22.65 52.64 35.67 5.33
Market Value to Book Value 5.45 11.44 19.73 30.32 10.49 1.26
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Debt Management
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Debt to Equity 17.20 18.32 17.62 16.55 16.16 14.86
Debt to Assets 0.95 0.95 0.95 0.94 0.94 0.94
Deposit times Capital 14.47 15.44 15.21 14.21 13.81 12.90
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Liquidity
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Earning Assets to Assets 0.86 0.84 0.84 0.86 0.85 0.84
Advance to Deposit 0.76 0.76 0.74 0.75 0.73 0.69
Yield on Earning Assets 4.83% 4.26% 6.92% 8.89% 9.17% 10.93%
Cost of Funding Earning Assets 2.25% 1.90% 2.90% 4.55% 5.27% 5.90%
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Solvency
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Equity to Assets 5.50% 5.18% 5.37% 5.70% 5.83% 6.31%
Equity to Deposits 6.91% 6.47% 6.57% 7.04% 7.24% 7.75%
Earning Assets to Deposits 1.08 1.05 1.03 1.06 1.05 1.03
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Dividend Payout
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Dividend per share 0.00 0.00 0.45 0.55 0.81 1.14
Dividend Yield 0.01% 0.00% 0.36% 0.22% 0.50% 4.30%
Dividend Cover - - 12.24 8.73 5.65 4.36
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Other Ratios
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Cost of funds 13.06% 25.13% 40.95% 47.25% 59.67% -
Intermediation cost 13.42% 15.17% 20.26% 24.42% 26.35% 32.60%
Net profit margin 12.63% 6.24% 17.16% 17.68% 18.05% 17.65%
Interest margin 0.60 0.57 0.48 0.42 0.45 -
Net interest margin 1.41 1.38 1.41 1.37 1.87 -
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