THE first among the Big-5 > banks to announce their half yearly results, Habib Bank Ltd with over Rs1.64tr in assets exceeded most sector watchers` earnings expectations.
The performance bolsters hopes that the government will fetch a sizable sum from offloading its shareholding in the bank later in the year.
Rising core income from increased investments in higher-yielding longterm bonds and a concerted focus on mobilising low-cost deposits led HBL to post a remarkable 43.4pc growth in unconsolidated after-tax profit for the six months (1 HCY14) to Rs13.5bn, against Rs9.4bn in 1HCY13. This translated into earnings-per-share (eps) of Rs9.23, up from Rs6.43. The bank announced an interim cash dividend of Rs2.25 per share (22.5pc), taking its total payout so far this year to Rs4 per share.
Meanwhile, HBL and its subsidiaries earned a consolidated after-tax profit of Rs14.6bn (eps Rs9.88) in the period, up almost 39pc from last year. The Group held a mammoth Rs1.74tr in total assets by end-June, including over Rs70bn in Islamic banking assets.
Both core and non-core incomes of the bank witnessed major improvement in the six months. The bankearned 15pc more (on a yearly basis) in income from loans to customers and financial institutions, which reached Rs25.7bn. Given that the bank`s `loans, cash credits, running finances` declined by 1.3pc in the period, the higher income from advances reflects the time-lag in the resetting of interest rates on loans after the central bank`s two policy rate hikes late last year.
Net advances rose 2.6pc to Rs537.22bn by end-June, led by increases in finance leasing and purchases of non-governmental bills.
Besides, HBL appeared to have undertaken a major reshuffling of its investment book in the period. It offloaded almost Rs203bn or over 33 pcof its Treasury bill holdings, which were valued at Rs401.8bn by end-June. And it simultaneously piled up Pakistan Investment Bonds, which reached Rs224.3bn by endJune.
As a result of this reshuffling, it earned Rs37.26bn in income from investments surpassing what it received from advances in the period. Its net investments stood at Rs723.37bn, down 9pc from the prior year, mainly as a result of the big drop in its T-bill holdings.
All of this led to the bank posting a healthy 7.6 pc rise in interest income,which reached Rs65.1bn. `The impact of the additional Rs107bn investment in PIBs in the first quarter and an estimated Rs120-150bn further investment in the second quarter [has] imparted this growth in interest income,` said Taurus Securities analyst Rohit Kumar.
However, the highlight of the bank`s half yearly results was the growth in its low-cost deposits, which helped it reduce its interest expenses. Current accounts at the bank rose by a big 24.4 pc to Rs472.3bn.
Simultaneously, high-cost fixed deposits dropped by 8pc to Rs302.7bn, while savings accounts dipped to Rs599.3bn from Rs608bn.
`The bank`s focus on building its stable core deposit base is yielding good results and current accounts and savings accounts (Casa) increased to 78pc as on June 30, against 75pc in December 2013.
Casa deposits [rose] by Rs84bn, whereas high-cost deposits reduced by Rs27bn,` the bank`s directors said in their report to shareholders.
This helped HBL reduce its interest expenses by over a billion rupees to Rs33.9bn. As a result, the bank managed to improve its net interest income by 22.2pc to Rs31.2bn.
The non-core business performed equally well, as reflected in the big 45.5pc increase in non-interest income, which reached Rs9.06bn in 1HCY14. Major contributors were gains from forex dealings (up 288pc to Rs1.16bn), banking fees and commissions (up 30.7pc to Rs5.2bn) and unrealised gain on held-for-tradingsecurities (up nearly four-fold to Rs14.5m).
Lower provisions: HBL provisioned an amount of Rs81.1m against non-performing loans in the period, down significantly from Rs1.35bn last year. The bank availed the benefit of forced sale value (FSV) accorded by the central bank, due to which it was able to reduce its provisions against NPLs by Rs950.3m.
The bank also remarked that it has not classified its exposure to Pakistan International Airlines (guaranteed by the government) to the tune of Rs8.576bn as non-performing, as per a relaxation granted by the SBP.
Besides, the bank made reversals against off-balance sheet obligations and against diminution in value of investments. As a result, it was able to record a net reversal of Rs168.6m in 1HCY14, against a provision of Rs1.33bn in 1HCY13.
However, its non-interest expenses rose by 24pc to Rs19.6bn, led by a 22pc growth in administrative expenses, which reached Rs19.04bn.
Privatisation: The healthy halfyearly result bodes well for the government`s goal to divest its shares in the bank in reportedly two phases, with the first transaction expected to take place this December and the other in June next year. The government hopes to raise about $1.2bn from the sales.
At the stock market, the Rs10 par value HBL stock has rallied nearly 18pc this year, and ended last Monday at Rs188.02 per share.