HABIB BANK LIMITED HBL

Largest Ever IPO to Come

MARIAM NASIR
Manager Research
July 09 - 15, 2007

HBL is Pakistan's second largest commercial bank, having a countrywide and international branch network. HBL has full service license covering commercial, retail banking, consumer and investment banking activities in Pakistan and most of the other countries where it is present. HBL has an extensive domestic network consisting of 1,437. It operates a large international network of 40 branches in 26 offshore locations spread over Europe, the Middle East, Far East, Asia, Africa and the United States. The bank ranks number one in advances and number two in deposits and total asset base amongst all banks in Pakistan. The bank has on overall bases of 5 million customers.

In 1974 the bank was nationalized but later on in 2004 the GoP privatized the bank by selling its 51% stake to Agha Khan Fund for Economic Development at a price of Rs. 22.41bn ($389.7m). Even after privatization, Government of Pakistan holds 49% of the shareholding in the bank of which the government is further offloading 5% of its holding (34.5m shares) through local bourses, with a 2.5% (17.3m shares) green shoe option exercisable in case of over-subscription. This event came after the government successful privatization program and overwhelming response on Global Depository Receipts of MCB and UBL.

HEAVY RETRENCHMENT

Over the years the bank continued to offload the employees by introducing various schemes. The bank had 32,770 employees in 1991, however, thanks to a drastic reduction in the number of employees in 1997 and a gradual decline from then onwards, the bank touched a low of 14,572 employees in 2006. In 2006 alone, 2,367 employees were retrenched. In January 2007, the management of HBL relieved about one thousand Assistant Vice Presidents and those officers, belonging to Officer Grade, 1, 2 and 3 who completed their 25 years in service or attained the age of 55 years or more.

ASSET MANAGEMENT LICENSE

HBL Asset Management Limited is a wholly own subsidiary of Habib Bank Ltd. It was incorporated on 17 February, 2006 as a public limited company under the Companies Ordinance 1984 and was licensed for Investment Advisory and Asset Management Services by Securities and Exchange Commission of Pakistan on 3rd April, 2006. The entry of Habib Bank's subsidiary in the mutual fund industry helped the nation's mutual fund industry and the banking itself to expand. The asset management company launched HBL Income Fund in the month of March 2007. The objective of the HBL-Income Fund is to provide stable stream of income with a moderate level of risk by investing in fixed income securities/instruments.

OUTSOURCING

The management of Habib Bank Limited embarked on a unique and innovative outsourcing plan. The HBL management outsourced all its non-core services involving some 2,350 employees. Accordingly, under an agreement the HBL outsourced the services of these employees to two firms Collateral Service Limited and the Excellent Security Limited which offered them a package which was termed as better than the market package. Under a formula, each employee would be paid a sum ranging from Rs1 million to Rs4 million.

DOMINANT MARKET POSITION

Habib Bank Limited has the biggest advances portfolio in Pakistan, catering to all sectors of the economy and all market segments i.e. corporate, consumer, SME, agriculture and retail. Advances and deposits stood at Rs.349.4 billion and Rs.459bn respectively at the end of December 2006 exhibiting a CAGR of 16.13% and 6.52% respectively post privatization in 2004.

RS. IN BILLION

CY02

CY03

CY04

CY05

CY06

Advances

167.5

183.7

259.1

316.9

349.4

Deposits

328.2

360.6

404.6

432.5

459.1

Total Assets

403.0

434.9

487.8

528.9

590.3

Total Liabilities

383.3

411.2

455.7

487.7

536.8

Total Equity

19.7

23.7

32.1

41.2

53.5

Profit After Tax

2.0

4.0

5.8

9.6

12.7

SUBSIDIARIES

* Habib Allied International Bank Plc., United Kingdom
* Habib Finance International Limited, Hong Kong
* Habib Finance (Australia) Limited, Australia
* Habib Bank Financial Services (Private) Limited, Pakistan
* Habib Currency Exchange (Private) Limited, Pakistan
* HBL Asset Management Limited, Pakistan
* First Habib Bank Modaraba, Pakistan

TECHNOLOGY UP-GRADATION

Habib Bank Limited has made large investment in the technology most importantly it has implemented a core banking system named MISYS. The software enables central processing of many branch functions. Currently 300 out of the total branches are online. The management has plans to double the numbers by the end of 2007. The management of the bank is pretty confident about the bank's IT infrastructure as it gives complete core banking package compared to other banks which are not truly centralized.

OUTLOOK

The bank recently re-branded itself under 'HBL'. A new look branch concurrent with modern needs has recently been inaugurated in Karachi and more branches are expected to be upgraded in this way. The bank is also focusing on Islamic Banking as well as expanding into Bancassurance business. The management also plans to enter actively into consumer financing through the launch of credit card later this year. The future vision of the management team is to convert HBL into a Universal Bank. HBL is close to purchase a minority stake in Kyrgyz Investment & Credit Bank in Bishkek, Kyrgystan. Similarly, it intends to buy a 20% stake in Urumqi City Commercial Bank, China by the end of 2007 in order to tap growing investment & trade activities between China and Pakistan. As far as establishing presence in India is concerned, the President stated that they have applied for a license for setting up 2 branches. These branches, expected to start sometime in 2008, would also have a focus to tap rising trade finance activities between India and Pakistan.