Save for the retrospective imposition of Super Tax on 2017 profits, HBL delivered promising 1QCY19 results. Better still, the result accompanied with a dividend announcement of Rs1.25/share – which was higher than the market estimates. While most analysts had seen a high provision charge coming up for the industry, HBL threw a surprise by actually booking a reversal. That, and a fatter balance sheet grow tin in the right direction meant HBL recorded a healthy 14 percent year-on-year increase in pre-tax earnings.
The asset composition has switched places from investments heavy to advances heavy over the past year. This is also reflected in the composition of mark-up income, where mark-up on advances had the lion’s share of 54 percent during 1QCY19 – versus 44 percent in the same period last year. The bank’s ADR now stands at a healthy 54 percent – up from mid-40s as at March end 2018.
The advances portfolio grew by more than Rs200 billion over March 2018, having crossed the trillion rupee mark. The investment portfolio, on the other hand went down by almost similar magnitude, thinning by 17 percent or Rs192 billion over March 2018. Given the interest rate environment, the shift in the asset mix is understandable and has been a trend across the industry. Within investments, the shift from PIBs to treasury bills is also obvious – and is reflective of the trends in interest rates.
On the liability front, the growth was steady without being spectacular, at 7 percent over March 2018. The deposit growth was particularly strong in domestic deposits, The CASA ratio at 85.4 percent is moving in the right direction – as the bank’s average current deposits grew by 11 percent in comparison to March 2018.
The contribution from non mark-up income increased substantially, largely owing to growth in fee based and commission income. The foreign exchange earnings also provided an able hand, but were almost offset by a drop in earnings from sale of securities. The operating expenses remained on the higher side, primarily due to efforts to streamline operations after the New York operations – the costs on account of legal and consultancy charges swelled up during the period.
The economy has slowed down undoubtedly and interest rates have gone up, and that could put some pressure in terms of advances growth. But HBL’s loan book is largely clean and well provided for, and the deposit base is huge and growing in the right direction. Should things improve in the macro picture, HBL would be one of the first to leverage its massive balance sheet.