Experts suggest a need for curtailing extravagance expenses
M Jahangir Hayat
LAHORE: Habib Bank Limited (HBL) has posted mega decline of over 51 percent in profit after tax for the half year 2019 which is Rs 3.9 billion compared to Rs 8.1 billion for H1’18.
Banking sector experts said the mega drop in the profit is due to abnormal hike in administrative expenses which have increased by 24% to Rs 45.0 billion. The banking sector experts commenting upon the abnormally high administrative expense suggested to administration to cut extravagance expenses enabling the bank to post solid growth in profits.
Earnings per share have also dropped to Rs 2.53 for H1’19 from Rs 5.42 in H1’18.
As per the HBL half yearly report, the bank’s core domestic business and all other major items continue to grow.
Total deposits increased by 6.8%, crossing the Rs. 2.0 trillion mark, with half the growth coming from current accounts.
The domestic mix of current accounts has improved by 66bps to 38.2% while the CASA ratio of 85.2% was just below December ‘18 levels of 85.4%.
Domestic advances increased marginally over December 2018 levels but the strong run-up in 2018 resulted in average advances for H1’19 being 25% (Rs 180 billion) higher than in H1’18.
The consumer business continued its steady growth with average consumer loans increasing by 17 percent over H1’18.
Overseas deposits and advances both increased in US dollar terms with the impact more pronounced in Rupees.
HBL’s total deposits thus grew by 7.8% over December 2018 to Rs 2.3 trillion with net advances of the Bank up by 5% to Rs 1.1 trillion.
Average domestic deposits, driven by a Rs 62 billion growth in average current accounts, increased by around Rs 100 billion.
The average balance sheet thus increased by Rs 135 billion (6%). The net interest margin in the domestic business improved by 59 bps as earning asset yields improved significantly due to re-pricing of loans and rollover of maturing investments at higher rates.
Domestic net interest income for H1’19 is thus 18% higher than for the same period last year.
With a 14% improvement from the international business in Dollar terms, total net interest income for HBL increased by 20%, to Rs 47.7 billion.
Fee income continued to improve, increasing by 16% over H1’18, to Rs 10.7 billion as international fees were restored to their prior year levels. Domestic fee growth of 15% was robust, achieved due to strong performances from the card related business, trade fees and investment banking income.
The sale of previously impaired equities resulted in a realized capital loss of Rs 1.8 billion, but with no overall P&L impact.
Excluding this, income from treasury related activities increased to Rs 3.4 billion in H1’19 compared to Rs 2.8 billion in the same period last year.
Core non mark-up income for the first half of 2019, excluding the revaluation loss on the Bank’s open position and the capital loss described above, increased by 13% YoY to Rs 15.8 billion.
In 2019, HBL has received several accolades from prestigious international publications. These include Pakistan’s Best Bank by Euro-money, Best Domestic Bank and Best Corporate & Investment Bank by Asia-money and Excellence in Retail Financial Services by the Asian Banker.
In addition, the Investment Banking team’s prowess was recognized through several “Deal of the Year” awards by The Asset magazine, including for Power, Utility and Transport.
As per the report administrative expenses of the bank for H1’19 increased by 24% to Rs 45.0 billion. This was largely driven by an increase in the ongoing remediation, legal and regulatory costs related to the Bank’s New York branch.
The substantial impact of Rupee depreciation on international expenses and the incremental cost of HBL’s new office building also contributed to the expense growth.
Excluding these major items, expenses increased by 11%. Total provisions for the first half of 2019 are Rs 511 million. Net reversals in the domestic business continue, although they are considerably lower, notwithstanding an improved recovery performance.
As per the bank report claimed HBL’s results for the first half of 2019 have been impacted by two specific market events – the further 15% depreciation in the value of the Rupee (impact : Rs 6.0 billion) and a 9% fall in the continuously declining PSX (impact : Rs 1.9 billion). The incremental impact of these, compared to the first half of 2018, is Rs 4.8 billion.
Resultantly, reported profit before tax of Rs 9.9 billion for H1’19 is Rs 4.2 billion (30%) lower than for the same period last year.
The retrospective imposition of Super Tax on 2017 earnings has increased the effective tax rate for the half year to 60%.