Habib Metropolitan Bank (HMB) announced 1QCY22 financial results earlier this week, registering a healthy 24 percent year-on-year growth in pre-tax profits. The markup earned showed signs of impressive growth, thanks largely to changed interest rate dynamics from the same period last year. Unlike its bigger sized peers, HMB’s recipe for profitability is built largely around the core income.

Average interest rates have undergone significant positive changes from last year, aiding markup earned. The net markup income growth stayed in check as increased interest rates also meant increased cost of deposits, which for smaller banks, could at time be a tough ask. The gross spread ratio during 1QCY22 came down considerably year-on-year, restricting the net markup income growth to a modest 5 percent year-on-year.

The biggest support to total income came from non-markup income, which grew by over 55 percent year-on-year. Increased activity meant higher fee and commission income, which made the largest chunk of the non-funded income. The most significant increase came from foreign exchange income, as favorable currency movement led to an increase of 178 percent year-on-year in foreign exchange income.

Non-interest administrative expenses shot up by 27 percent year-on-year, which appears to be on the side, compared to mid-sized banks. Provisioning charges came down by more than half form the same period last year, offering respite. Cost to income ratio improved slightly from 1QCY21. Balance sheet numbers are awaited for detailed analysis in terms of HMB’s asset positioning, deposit mix, and health and coverage of the loan book.