Karachi, August 27, 2024 – Habib Bank Limited (HBL) has projected a significant reduction in the key policy rate by the State Bank of Pakistan (SBP), expecting it to decrease to 14-15% by June 2025. This forecast was shared by the bank’s management during an analyst briefing hosted by Arif Habib Limited.
The anticipated rate cut reflects HBL’s strategic outlook on the country’s monetary policy trajectory, suggesting a potential easing of financial conditions in the coming year. To mitigate the expected compression in Net Interest Margins (NIMs), HBL plans to expand its balance sheet and continue growing its current accounts.
During the briefing, the HBL management provided an in-depth analysis of the bank’s performance in the second quarter of the calendar year 2024 (2QCY24) and outlined its strategy moving forward. Key highlights from the session included a detailed review of the bank’s financial results and future plans.
For 2QCY24, HBL reported earnings of PKR 14.4 billion (EPS: PKR 9.8), representing an 11% year-on-year (YoY) increase but a 6% decline quarter-on-quarter (QoQ). In the first half of the calendar year 2024 (1HCY24), total earnings amounted to PKR 29.6 billion, marking a 13% YoY growth. This rise in earnings was primarily driven by an increase in total income. The bank also declared a cash dividend of PKR 4 per share for 2QCY24, bringing the total payout for 1HCY24 to PKR 8 per share.
As of June 2024, HBL’s total deposits stood at PKR 4.8 trillion, reflecting a robust 17% growth since December 2023. This growth was largely fueled by an increase in low-cost deposits, with current accounts alone contributing an additional PKR 186 billion since December 2023.
By the end of June 2024, HBL’s investment portfolio was heavily weighted towards Treasury bills (T-bills) and floating rate Pakistan Investment Bonds (PIBs), which together comprised 79% of the total investment book. Specifically, the bank invested PKR 854 billion in T-bills (27% of the portfolio), PKR 558 billion in fixed-rate PIBs (18%), and PKR 1.08 trillion in floating-rate PIBs (34%). The average yield on the fixed portfolio is 15.5%, with an average duration of three to four years.
The bank’s Advance-to-Deposit Ratio (ADR) declined to 36.7% as of June 2024, down from 44.9% in December 2023, mainly due to a slowdown in credit demand. However, HBL’s management remains optimistic about reaching a 50% target by year-end to avoid ADR-related taxes.
Looking ahead, HBL aims for a Return on Equity (ROE) in the range of 17% to 19%, with the current ROE standing at 17% as of June 2024. However, the bank’s infection rate increased to 5.8% by June 2024, up from 5.2% in December 2023. The coverage ratio improved slightly to 90.7%, compared to 83.3% at the end of December 2023.
The management also highlighted the high provisioning charges in 1HCY24, driven by the adoption of IFRS-9 and additional provisions for sectors such as autos, construction, and steel. However, with an improving economic environment and the anticipated rate cuts, the management expects provisioning charges to decline in the latter half of 2024.
HBL’s strategic focus on balancing growth with prudent risk management is evident in its forward-looking approach, as the bank navigates the evolving economic landscape of Pakistan.
