BANK AL HABIB LIMITED

S.M. ABBAS ZAIDI,
Research Analyst
, PAGE
June 1 - 7, 2009

Bank AL Habib Ltd was incorporated in Pakistan on 15 October 1991 as a public limited company. Bank AL Habib is a scheduled bank principally engaged in the business of commercial banking with a network of 232 branches including wholesale branch in the Kingdom of Bahrain and a branch in Karachi Export Processing Zone and four Islamic Banking branches. Its shares are listed on all the Stock Exchanges in Pakistan.

Pakistan Credit Rating Agency Limited (PACRA) has maintained the Bank's long term and short term entity ratings at AA (Double A) and A1+ (A One plus) respectively.

FINANCIAL ANALYSIS

During the first quarter of this calendar year, the performance of the bank continued to be satisfactory. The deposits increased to Rs.156.2 billion as compared to Rs. 144.4 billion on December 31, 2008. In the same period, advances decreased to Rs. 93.3 billion as compared to Rs. 100.2 billion on December 31, 2008, because of the general trend in the banking sector during the period. While investments increased to Rs. 70.0 billion from Rs. 48.2 billion. Foreign Trade Business also continued to maintain a rising trend. The pre-tax profit of the bank for the quarter ended March 31, 2009 was Rs. 1,008.7 million as compared to Rs. 810.9 million during the corresponding period last year.

BANK AL HABIB FINANCIAL ANALYSIS
(Rs in '000)
INDICATORS 31 MAR 2009 31- DEC 2008
Total assets 196,898,190 177,323,532
Investments 70,003,064 48,234,497
Advances 93,330,335 100,196,996
Liabilities 184,868,136 165,690,582
Net assets 12,030,054 11,632,950
Admin expense 1,320,415 930,529
Profit before tax 1,008,694 810,893
Profit after tax 677,791 521,468
EPS (Rs) 1.11 0.85
Source: Bank Alhabib

CONSUMER BANKING

Bank AL Habib Limited offers consumer loan facilities to its eligible customers. These facilities are tailored to suit customer requirements with competitive rates and an easy means of payment. The bank deals in Auto loans, Home loans, Home buying, Home construction and Home improvement.

ISLAMIC BANKING

Bank AL Habib Limited is a well established commercial bank in Pakistan, which has also been licensed by the State Bank of Pakistan to undertake Islamic Banking through its Islamic Banking branches.

Bank AL Habib's Islamic Banking branches offer Deposit Schemes and Islamic Financing for Individuals / Traders / Industries which are completely based on Islamic Shariah principles.

ISLAMIC BANKING BUSINESS
( Rs in '000)
INDICATORS 31 MAR 2009 31 DEC 2008
Islamic Banking Funds 250,000 250,000
Deposits and Other Accounts 2,433,061 2,017,509
Due to Head Office 40,000 -000
Murabaha Financing 837,552 743,719
Ijara Financing 614,413 556,290
Diminishing Musharaka 331,981 427,648
Source: Bank Al Habib

BANKING SECTOR IN 2008

The cumulative profit of 22 listed commercial banks has declined by 21% to Rs 50.3bn in 2008 as compared to Rs 63.6 billion in the same period in 2007, mainly due to higher provisions for non-performing loans (NPLs) and impairment loss. The full year profits of CY08 were lower than the profits of the last couple of years but still it remained profitable. The overall profitability was neutralizing due to more than proportionate increase in operating expenses and provisioning for loan losses. In absolute terms, expenses increased by 33.4 percent to Rs 235.8 billion in CY08, which affected the overall profitability of the system.

In addition to higher provisions, enhanced branch network with increased human resource base has increased the expenses of the system. The banking sector in Pakistan has remained somewhat insulated from the global financial turmoil and has maintained its profitability albeit the slower growth. The prevailing global economic downturn nevertheless has the potential to impair corporate and business profitability that may ultimately heighten the credit risk and may affect the earnings of the banking sector in the quarters ahead.

This rise in NPLs observed across all the banking groups except specialized banks, where NPLs have actually decreased. NPLs have been on the rise mainly due to poor economic performance of the economy and the FSV benefit therefore resulting in worsening of asset quality ratios. Total provisions for NPLs surged to Rs 53 billion in 2008 as against Rs 42 billion in 2007, an astounding growth of 27% largely due to slowdown in economic growth. The composition of segment wise NPLs of the banking system shows that infection ratio of all the segments except agriculture have increased. The infection ratio of consumer finance portfolio increased in CY08 (2.3 percent over the year). Rising inflation and contained disposable incomes coupled with increasing lending rate have reduced consumers' appetite for credit as well as their repayment capacity, resulting in increasing defaults rate in the consumer finance. Interestingly, in the wake of economic slowdown, banks seem to facilitate the businesses through rescheduling/restructuring of loans, the textile sector being the major beneficiary.

Latest banking industry numbers show an effort to keep balance sheets clear of NPLs by recognizing and loans extension on criteria that are more stringent. This approach might look costly short time but in the long run it will definitely benefit banks by providing a cushion to withstand losses.

FUTURE OUTLOOK

Today, our country faces enormous challenges. The problems of banking sector include restrained liquidity, economic slowdown, and high inflation. Despite these issues Bank Al Habib has been able to maintain its profitability and its only concern is NPLs growth, which has to be checked. However, the bank is equipped to withstand challenges.