Pakistan’s largest commercial bank HBL, announced its 9M-CY22 financial results posting a sizeable 20 percent year-on-year in pretax profits. The result was accompanied with a dividend of Rs1.5/share. The after-tax profits were considerably down year-on-year, as the excessive taxation measures in the Budget with retrospective impact took the effective rate of taxation to as high as 58 percent for 9MCY22 versus 42 percent in the same period last year.

Against the run of play, HBL performed well on advances front, showing a 14 percent growth in advances over December 2021 to Rs1.7 trillion. Double-digit growth was witnessed in the Bank’s consumer and agriculture advances portfolios, growing 17 and 14 percent, respectively. HBL’s ADR increased from 44 percent in December 2021 to 51 percent as at September end – one of the highest among big banks. The NPLs grew from Rs80.8 billion to Rs91.8 billion, with the infection ratio unchanged at 5.3 percent.

The changing interest rate scenario led to a shuffle in asset mix, as investments went down 2 percent over December 2021. On the liabilities front, deposit growth was muted at Rs3.3 trillion. HBL’s CASA ratio in the early 80s is still shy of the peer banks, with saving deposits constituting the biggest chunk of the deposit mix.

The non-funded income increased 38 percent year-on-year, which the Bank puts largely down to an exceptional growth of 27% in fees and commissions, led by HBL’s flagship Cards business with strong contributions from consumer finance, trade, and branchless banking activities. Administrative and operating expenses stayed on the higher side, mainly due to higher inflationary environment for much of the nine-month period. HBL’s continued focus on technology upgradation also resulted in higher overall administrative cost.

Overall economic situation for the next two quarters signals at a slowdown in economic activity, which could put brakes on the double-digit advances’ growth, especially to the blue-chip borrowers. High interest rates coupled with high inflation and reduced purchasing power could pose higher risks to the overall health of loan book. That said, HBL boasts of sound financial indicators with adequate risk mitigants deployed – and should be able to sail smoothly even if the next two quarters pose more challenges.

With the economic slowdown kicking in, next half could well be a slow-moving period in terms of economic activity and genuine credit appetite, given the high interest rates. That said, HBL’s investment portfolio in excess of Rs2.2 trillion is there to satiate government’s ever-rising borrowing appetite at lucrative rates. Asset tenor reprofiling could well be the order in the second half of 2022.