Research Analyst
Aug 23 - 29, 2010

Habib Bank Limited (HBL) was nationalised in 1974 and it continues to dominate the commercial banking sector with a major market share in inward foreign remittances (55 per cent) and loans to small industries, traders and farmers.

The bank's international operations were expanded to include the USA, Singapore, Oman, Belgium, Seychelles and Maldives and the Netherlands.

On December 29, 2003 Aga Khan Fund for Economic Development (AKFED) by virtue of being the highest bidder at Rs22.409 billion acquired 51 per cent share and management control of HBL. The government holding has been reduced to 49 per cent. On February 2004, HBL was handed over to the new management. The board of directors was reconstituted to have four AKFED nominees including the new chairman and CEO and three governments of Pakistan nominees.

Currently, HBL's principal activity is to offer services in retail and consumer banking. HBL has the largest corporate banking portfolio in the country with an active investment banking arm. SME and Agriculture lending programs and banking services are offered in urban and rural centers. It has a domestic market share of over 40 per cent. It is the first Pakistani bank to raise Tier II Capital from external sources. HBL is the largest private sector bank in Pakistan, having a market share of 13.4 per cent in the overall banking sector's domestic deposits at end of 2009.

During the six months ended 30th June 2010, the bank achieved a pre-tax profit of Rs12.11 billion reflecting an increase of Rs1.69 billion and growth of 16 per cent over the corresponding period of last year. The non-fund income of the bank has contributed significantly with a growth of Rs0.64 billion (excluding capital gain) which is 13.5 per cent higher. Capital gains also increased by Rs0.20 billion over the past period. The post tax profit rose 13 per cent to Rs7.42 billion.


Assets 875,451,415
Liabilities 789,164,897
Profit after tax 7,865,165
EPS (Basic & Diluted) Rs7.77

The recovery from the global financial crisis is fragile and the effects of the crisis are expected to continue. With low overall productivity in the economy, banks will continue to see the impact as the economy adjusts to post crisis credit costs.

The bank focuses on developing new products to suite customer needs and improving service quality demonstrates a commitment to support their customers through challenging times.

The bank has continued to improve its standing across the globe and has been awarded as the best emerging market bank 2010 by global finance. This award has been conferred on HBL in recognition of its superior performance, enhanced profitability, expanding asset base and innovative products and services.

Recently, the bank has a network of over 1450 branches in Pakistan and 55 branches worldwide. HBL's long term credit rating is AA+ and its short term rating A-1+. In reaffirming the ratings, JCR cited that in the backdrop of increased credit risk, performance of the bank has shown resilience with capitalisation levels remaining strong.

However, in FY09 the banking sector in Pakistan remained stable despite the adverse economic conditions. The industry absorbed the upsurge of NPLs in the system while maintaining profitability and robust balance sheets. Overall profits of the industry grew 26.07 per cent in the FY09. Deposits also increased but at a slower pace. Gradual improvements in the economic environment are good signs for the banking sector. Some favourable developments include the reversal of the monetary stance due to the easing off inflationary pressures, restoration of the regular functioning of the KSE and relative stability in the exchange rate. These developments not only helped in stemming the rapid deterioration in some of the financial indicators of the banking sector, but also signaled gradual improvement in the stability of the banking sector in 1H09, as against the position at the end of FY08.

Furthermore, in FY09 the banking spread has widened by 74 bps compared to a fall of 57 bps in the previous year. Domestic private banks experienced the largest increase in spread. Spread of foreign banks though declined by 92 bps, it still remained the highest in the banking group.

Currently, the banking sector is facing two major problems. The first is the decline in credit demand, which can be attributed to slowdown in the economic activities due to poor law and order situation, power crisis, inflationary pressure, and high interest rates. The other problem is the mounting amount of NPLs. With the exception of a few banks all the banks are exhibiting considerable rise in NPLs. These two issues are collectively dampening the banking sector's performance.


FY08 FY09 FY08 FY09
Textile 18.7 38.1 12.6 18.8
Elec & trans of energy 1.7 23.5 2.8 8.2
Automobile & transport equip 0.9 9.5 6.3 17.7
Financial -0.2 6.2 0.8 12.5
Sugar 0.1 4.1 5 10.2
Cement 3.8 3.4 8 11.4
Chemical & pharma 1.5 1.9 8.8 8.3


HBL strives to maintain its superior market positioning as it continues to improve its extensive branch network through technology upgrades as well as product innovation. Currently, HBL has been able to maintain its profitability and only concern is of the higher NPL's growth, which has to be checked as it has surpassed to alarming levels. Besides this, the bank is equipped to face challenges with its dynamic management and trained workforce.