Habib Bank Limited disclose its future roadmap

Habib Bank Limited (HBL) held its webinar today to discuss CY20 results and future roadmap. Recall that Habib Bank Limited (HBL) reported earnings of PKR 3.9/sh (down 14.9/43.3% on YoY/QoQ), taking CY20 earnings to PKR 21.1/sh (up 101% YoY). Reason behind the decline in profitability was due to significant increase in deposit cost (mark-up expense increased by 10.0% on QoQ basis to the tune of PKR 32.

0Bn), absence of capital gains and provisioning charge of PKR 3.7Bn. The bank also an-nounced below expected cash dividend of PKR 3.0/sh in 4QCY20, taking CY20 pay-out to PKR 4.3/sh. Key highlights of the webinar are presented below:-

Key takeaways from the briefing are:

Note that the bank has exercised the call option on all outstanding Tier II Certifi-cates with the outstanding principal amount of PKR 9.98Bn. As a result of this, the bank has slashed dividends in 4QCY20 to improve capital buffer, in our view.

Net Interest Income (NII) improved by 28% on a YoY basis to PKR 130Bn in CY20 in which domestic NII rose by 32% YoY to PKR 122Bn. NIMs of the bank have im-proved by only 52bps in CY20 to 5.7% which is attributable to immediate down-ward repricing of assets, which as per the bank, started from Q3’20.

Non-Interest Income of the bank posted an increase of 28% YoY to PKR 31.0Bn in CY20 mainly due to higher capital gains (unrealized gains of PKR 9.7Bn out of which PKR 8.1Bn were realized in CY20). Fee income started to rebound in 3QCY20 but showed a decline of 8% YoY to PKR 1.7Bn mainly due to decline in Bancassurance and investment banking related income. Moreover, the bank expects NIMS to shrink to 4.75-5.0% in CY21 while ROE is forecasted to average at around 18-19% in CY21.

Overall advances have gone up by ~4.8% YoY to PKR 1.2Trn with major spike seen in 4QCY20 (↑ 10% YoY). Domestic advances have increased with similar pace (4.9%) to settle at over PKR 1.0Trn while international advances increased by mere 1.4% to USD 1.3Bn. The bank’s Advances to Deposits Ratio (ADR) now stands at ~43.2% and they expect to maintain market share going forward.

While commenting on the TERF facility, the bank has disbursed PKR 35Bn in CY20 and PKR 10.0Bn for construction sector in particular.

On the provisioning front, the bank booked provision charges of PKR 12.2Bn in CY20 where PKR 6.4Bn was booked under general provision to account for future losses that may arise from the SBP provided relief schemes due to Covid-19. On international side, the bank booked provision charges of PKR 5.0Bn out of which PKR 1.3Bn was booked under general provisions while the rest were booked under specific provisions (PKR 3.7Bn). Overall, NPLs increased by a meagre PKR 0.2Bn, taking infection ratio of the bank to an all time low of 6.3% in CY20 compared to 6.6% in CY19. As a result of higher provision charges, coverage ratio now stands at 100% where specific coverage ratio slightly reduced by 2.4ppts to 86.3% due to pile up of fresh NPLs.

The bank’s investment portfolio continued to grow and stands at around PKR 1.9 Tn. The bulk of this portfolio (~PKR 1.7trn) is concentrated in government securities. HBL is currently hold-ing PKR 1.0trn worth of PIBs (35% are floater while rest are parked in fixed PIBs).

Despite COVID-19 related uncertainties, overall deposit base of the bank grew by 16.1% YoY to PKR 2.8trn in which current accounts share is around 36% (PKR 1.0 Trn). On the domestic side, deposits shot up by 15% YoY (an increase of PKR 400Bn) since Dec’19 led by 15% YoY increase in current accounts (↑PKR 116Bn YoY) and 20% YoY improvement in savings ac-counts with overall CASA of 85.8%, a slight decline from 86.2% in the past year. International deposits of the bank have witnessed a decline of 6% to USD 1.6Bn.

While commenting on the RDA accounts, the bank stated that they have already attained 18-19% share in this segment.

The bank expects to open 100 new Islamic branches in CY21 (mostly commercial branches are likely to convert to Islamic branches). The management also said that they are likely to inau-gurate Beijing branch in Mar’21.

Report by: BMA Capital Management Ltd.

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