HABIB Bank Limited posted a strong earnings growth of 63pc in the first quarter of the calendar year.
However, earnings slipped on a quarterly basis, as the bank’s net interest income declined by 3pc due to a contraction in net interest margins, as the central bank continued with its monetary policy easing stance.
The quarter also saw the bank book substantial gains on sale of securities — up 2.1 times on a quarterly basis — which provided a buffer to otherwise declining earnings.
Change in investment mix: An analysis of the bank’s investment book showed that compared to the previous quarter (4QCY14), the bank reduced its exposure in Pakistan Investment Bonds (PIBs) to 28pc of total investments from 34pc.
The cash flow generated from the sale of PIBs was utilised in increasing the bank’s exposure to short-term Treasury bills
Nonetheless, in terms of total investments, the bank’s PIBs were still higher than their level in the first quarter of the previous year.
The cash flow generated from the sale of PIBs was utilised in increasing the bank’s exposure to short-term Treasury bills, which went from 50pc in 4QCY14 to 56pc by 1QCY15.
While such a change in strategy may dent the bank’s profitability going forward, given the lack of reinvestment options offering yields as attractive as those on disposed PIBs, the bank believes it is currently placed at an optimum position on the risk-return matrix.
Meanwhile, first quarter earnings also benefited from a 35pc uptick in net interest income, as the bank’s net interest margins rose by 1.1 times when compared with the same period last year. The bank’s asset book grew 16pc on a yearly basis.
The bank is also likely to continue relying on booking further capital gains in the future quarters to support its profit levels, in case private sector credit off-take continues to stay muted.
The last few years have seen depressed credit growth amidst high cost of advances, economic slowdown and diligent loan-screening criteria.
However, the trend is likely to reverse from next year given the improvements on the macroeconomic front, energy sector reforms, and the development of projects under the Pakistan-China Economic Corridor.
Over the last five years, HBL’s gross advances have grown at an average rate of 6.32pc, and this rate is expected to increase over the next three years.
Haris Ali, Global Securities