Karachi, Pakistan – March 6, 2024 – Habib Bank Limited (HBL) expects the benchmark interest rate in Pakistan to be reduced to 17% by the end of 2024.
Analysts at HBL believe the monetary policy committee will maintain the current rate at its upcoming meeting in March but predict a cut in April. They forecast the rate to reach around 17-17.5% by December 2024.
Bank Reports Earnings Growth
The bank recently held a briefing to share financial information. HBL announced earnings of PKR 14.8 billion for the fourth quarter of 2023 (EPS: PKR 10.12), representing a 39% year-over-year increase but an 11% decrease compared to the previous quarter. The overall rise in earnings is attributed to growth in total revenue. HBL also declared a final dividend of PKR 4 per share, bringing the total dividend for 2023 to PKR 9.75 per share (up from PKR 6.75 in 2022).
Deposit Growth and Investment Strategy
HBL’s total deposits reached PKR 4.1 trillion by December 2023, a 19.4% increase from December 2022. Domestic deposits grew by PKR 357 billion to PKR 3.1 trillion in 2023, with a significant portion coming from low-cost deposits. The bank aims for deposit growth of 18-19%, aligning with the national M2 growth rate.
The bank’s investment portfolio remained focused on liquidity, primarily invested in government treasury bills and floating-rate Pakistan Investment Bonds (PIBs) as of December 2023. The total investment stood at PKR 2.6 trillion, with 17% in T-bills, 19% in fixed-rate PIBs, and 41% in floating-rate PIBs.
Loan Growth and Asset Quality
HBL reported a decrease in the investment deficit due to Pakistan’s recovering Eurobond yields. The bank’s management highlighted an average yield of 19.6% on the banking book and 21.6% on the trading book.
The bank’s Advances to Deposits Ratio (ADR) declined to 44.9% in December 2023 from 51.4% in December 2022, primarily due to slower credit demand. Management anticipates loan book growth of 12-13% year-over-year in 2024.
HBL expressed confidence in its current asset quality and does not foresee a significant increase in non-performing loans. The bank expects the infection ratio (ratio of non-performing loans to gross advances) to stabilize or decrease as advances increase.
Impact of IFRS-9 and Potential ADR Tax
The implementation of the International Financial Reporting Standard (IFRS) 9 is expected to impact the bank’s equity by PKR 19 billion. However, the State Bank of Pakistan (SBP) has allowed a phased-in approach to minimize the impact on capital adequacy ratios.
Regarding the potential implementation of a tax on ADR, HBL acknowledges its likelihood but advocates for a method based on average weekly balances. The bank believes relying on period-end figures might discourage lending activity.
Legal Case Update
HBL incurred legal charges of PKR 10.7 billion in 2023 due to ongoing litigation in New York. The bank maintains confidence in its case and intends to continue pursuing it. No further updates are available at this time.
