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HBL’s financial review

Habib Bank Limited (HBL) is incorporated in Pakistan and is engaged in commercial banking related services in Pakistan and overseas. The Bank operates 1,703 branches inside Pakistan, including 47 Islamic Banking Branches and 48 branches outside the country including in the Karachi Export Processing Zone.

The Aga Khan Fund for Economic Development (AKFED), S.A. is the parent company of the Bank and its registered office is in Geneva, Switzerland.

Decline in profit for the first half

Habib Bank Limited (HBL) posted 49 percent decline in profit after tax to Rs7.9 billion for the first half of financial year 2018 as compared with Rs15.49 billion in the same half of the last year.

The earnings per share for the period came down to Rs5.42 for the January to June 2018 as compared with EPS Rs10.56 in the corresponding period of the last year.

A dividend of Re1/share was also announced for the quarter, as per expectations. NII of the bank settled at Rs40.3 billion for 1HCY18, decreasing by 3 percent YoY as 14 percent higher interest expense offset the 4 percent rise in mark-up income. However, NII showed a 2 percent QoQ uptick. NFI faced a drastic decline of 35 percent YoY as capital gains stressed 82 percent YoY as the bank had booked hefty capital gains during 2HCY17.

The bank also booked a loss on its dealing in foreign currencies as per expectations worth Rs385 million for 2Q (the bank booked a loss in 1Q of Rs657 million and 4Q as well of Rs413 million).

The loss on foreign exchange income is on account of the rupee depreciation which is adversely impacting the bank’s repayments in lieu of the foreign loan taken for the settlement payment.

Fee income faced a 10 percent YoY downturn during first half of 2018. However, NFI increased 8 percent QoQ attributable to higher fee income and dividend income.

Provisioning expenses of the bank declined 98 percent YoY during 1HCY18 to settle at Rs21 million. The bank booked a net reversal against advances worth Rs243 million during the said period which countered the provision for diminution in value of investments worth Rs262 million, which is possibly on account of poor equity market performance. OPEX clocked in at Rs36.9 billion increasing significantly by 27 percent YoY as admin expenses rose 28 percent during the period. The rise in OPEX trend has been continuously witnessed since 4QCY17 which is on account of the NY branch closure related expenditure, which is likely to continue until 1QCY19, as per management. Effective tax rate was set at 42.5 percent compared to 43.4 percent SPLY, during 1HCY18.

Major banks suffered a significant profit cut. HBL’s core domestic business continues on a strong trajectory, with steady growth in key drivers.

Total domestic deposits increased by 8% to nearly Rs 1.9 trillion and its leading market share increased further to 14.4%. In the first six months of 2018 alone, the Bank added Rs 119 billion in domestic CASA deposits, and the ratio of current accounts rose to 36.3% in June 2018. Even more impressively, HBL’s average current accounts increased by around Rs 80 billion, a growth of 15% compared to the first half of 2017.

With a renewed focus on robust lending growth, HBL’s domestic loan book increased by Rs 91 billion during the first six months with strong contributions from Islamic Financing, Consumer Lending and Corporate loans.

In the first half of 2018, HBL continued its strong recovery performance, recording a reversal of Rs 240 million against loans, compared to a provision of Rs 564 million in H1 2017. The infection ratio further reduced to 7.6% while the coverage ratio strengthened to 91.7%.

In July, the bank launched its proprietary product, Konnect by HBL. It has received excellent market acceptance and in a few weeks, over half a million customers have been serviced. 25% of Konnect account holders are women. Within the first month, nearly 700,000 transactions with a value of over Rs 4.5 billion have taken place via the Konnect platform.

HBL continues to widen its customer franchise and footprint; during 2018, the bank has added over 600,000 customers, supporting them with over 1,700 branches, 2,093 ATMs, 30,000 retail outlets and nearly 19,000 POS machines across Pakistan and digital channels of HBL Mobile and Internet Banking.

HBL is also contributing Rs 100 million towards the construction of the Diamer-Bhasha and Mohmand Dams. The Bank has embarked on a global business and compliance transformation project and will continue to invest in this area, in state of the art technology, and in building on its market leading brand presence.


Scam inflicts a hard blow to profit in 2017

The profit of the Habib Bank Limited has shown a steep decline in 2017 mainly because of the imposition of penalty in the United States over the bank’s failure to meet the anti-money-laundering and terror financing regulations requirement in the US. The 2017 financial statement of the bank shows that the HBL’s profit has dropped to mere 8.18 billion rupees (post-tax profit) in 2017 as compared to 34.20 billion rupees net profit in 2016.

The pre-tax profit of the bank last year fell to 28.81 billion, from 56.52 billion in 2016, depicting a big blow to the profit and disappointment to the shareholders of the bank. In terms of ranking of the HBL in profit in 2017, this largest commercial bank in Pakistan stood below the medium-size banks in the country. The 2017 mega scam has eroded the earning per share of the bank and threw it to 5.34 rupees, compared 23.23 rupees in 2016.

The borrowings of the Habib Bank too have increased to 397.80 billion rupees in 2017, from 331.72 billion in 2016, showing a huge increase of over 66 billion rupees in a year.

The wrath of the US authorities has badly impacted the overall performance of the bank in 2017. There are reports that the US action against the Habib Bank had also caused negative impact on the overseas operations of the bank in handling the remittances and money transfer in 2017 and this may cause more financial stress for the bank in 2018.

Profit in 2016

Habib Bank declared a consolidated net profit of Rs34.2 billion for 2016, down 2.5 per cent from a year ago. Earnings per share remained Rs23.23 against Rs23.93 for 2015.

The bank also declared a final dividend of Rs3.50 per share, or 35pc, bringing the total dividend for the year to Rs14 per share. In 2016, earnings decreased mainly on the back of lower capital gains, which were down 52pc, due to the high-base effect, said a report by Topline Securities. Despite major maturities of high-yielding PIBs in 2016, HBL posted flat net interest income (NII), which was helped by strong deposit growth, it said. HBL’s balance sheet grew 13pc over December 2015 to reach Rs2.5 trillion. Overall, the bank added Rs250bn in deposits. In 2016, HBL grew its average domestic current accounts 19pc over 2015, enabling the bank to reduce its cost of deposits.

The fourth-quarter result of the bank showed the profitability of HBL remained in check as non-interest expense was up 18pc year-on-year to Rs13.5bn in Oct-Dec. NII of the bank remained flat in Oct-Dec, which is in contrast to peer banks that posted significant NII declines due to lower margins.

Non-interest income was also up 4 percent as the bank booked higher capital gains during the quarter on the back of PIBs and equities.

A press release by the bank said current account deposits increased more than 16pc, reaching nearly Rs700bn, with the current account mix improving to 37pc of total deposits.

With the improved economic climate, lending growth has accelerated with loans growing by over 17pc, driven by increases in corporate lending and strong support from the SME and consumer segments.

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