This may well be the toughest time in Pakistan’s economic history, but looking at HBL’s 1QCY23 results would let you forget that for a while. Pakistan’s largest commercial bank, HBL, posted another record quarter – with a 47 percent year-on-year increase in pretax profits. Strong volumetric asset growth, favorable interest rate scenario, sustainable profits from international franchise, and continued support from non-interest income – all contributed to the record profits.

The balance sheet grew 7 percent nearing Rs5 trillion, with the total deposit base increasing 4 percent over December 2022. HBL continues to improve the CASA ratio with almost 90 percent of increase in domestic deposits stemming from low-cost deposits. On the asset front, low business confidence and record high policy rate of 21 percent led to reduced credit demand from the private sector, as domestic advances slid by Rs54 billion – whereas total advances remained largely unchanged from December 2022. The ADR that had crossed 50 percent as at December 2022 –was slightly pegged back to a little over 49 percent.

Strong growth in net interest income was driven largely by 13 percent growth in the average balance sheet and an improvement in banking spreads. The net interest margins improved by 187 basis points over the same period last year. Average spreads of the banking sector have increased by 259 basis points over the same period last year. Similar growth trends were witnessed in overseas locations due to spread improvement and monetary tightening.

HBL maintained the leader status in fee and commission, with the card business growth of 27 percent year-on-year accounting for two-thirds of the fee increase. Overall,non-markup income went down 17 percent year-on-year, due tothe gain on sale of securities turning into a loss this quarter and foreign exchange loss of Rs5.5 billion.

Despite the record high inflation during the quarter, HBL managed to improve the cost to income ratio by over 400 basis points from the same period last year to 60.8 percent in 1QCY23. Bulk of the increase in administrative expenses came at the back of software maintenance, legal and processing charges, and utilities. HBL’s compensation expense increased by only 5 percent year-on-year –significantly lower than average rate of inflation.

Infection ratio has inched up slightly across the industry,and HBL was no exception with infection ratio inching up to 5.4 percent – but adequately provided with a coverage ratio of over 100 percent. Provisioning charges more than doubled year-on-year – as a result of additional provisions booked by the bank as Pakistan’s ratings were downgraded heavily.

Pakistan continues to appear on the brink especially as the IMF deal remains elusive. Trends in LSM growth suggest an increase in private sector credit demand is unlikely in the coming quarters. Significantly reduced purchasing power at the household level will also be a drag on the loan book quality across the industry. All said HBL’s health of soundness indicators and its sheer size could well ensure riding the rough wave better than most.