Habib Bank Limited (HBL)

HBL Branches

Dear Clients,

Habib Bank Limited (HBL) held its conference call today to discuss financial performance of 1QCY21 and the outlook. HBL posted PAT of PkR 8.6bn (EPS: PkR 5.66) in 1QCY21, up 108% Y/Y. The increase in profitability is attributed to i) lower than expected provisioning and ii) revaluation gain of PkR 0.8bn due to rupee appreciation. The gain was booked on account of short open position in USD.

Key takeaways

– The bank has started to make inroads in the dairy and livestock sector of Pakistan. With a new branch being opened up in Beijing, the intermediation has increased between Chinese partners and the ongoing CPEC Phase II

– Sustainability has been a huge question mark for HBL where it has stopped financing coal fired projects and started to focus towards green energy businesses

– HBL continues its digital journey approaching the target of channel migration of 30% enhancing to 1.8mn HBL Konnect application users

– The bank has a solid footing in the Roshan Digital Account flows where nearly USD 129mn inflows (16% market share) is borne by HBL. The total number of RDAs opened is 21.4k accounts and nearly USD 78mn of the inflows have been mobilized towards Naya Pakistan Certificate

– NII increased by 16% to PkR 32.5bn where by NIM compression remained limited to 18bps from strong Treasury operations and growth of more than PKR 120bn worth of current accounts

– Non-funded income rose 42% to PkR 8.2bn as fees income continued its upward momentum from cards, trade and consumer finance. The bank also booked a revaluation gain of PkR 0.8bn from LCY appreciation against the greenback. It is noteworthy that non-funded income is up 22% after excluding revaluation and capital gains

– Administration cost remains on the lower end post shut down of New York operations. The bank continues to focus on reducing the C/I ratio. Excluding capital gains C/I ratio has dropped to 58.4% in 1QCY21 against 81.4% in the same period last year

– Infection ratio is at a record low of 6.3% with NPLs declining PkR 0.7bn since Dec’20. Provisioning of PkR 1.9bn in 1QCY21 is higher than PkR 1.3bn in the same period last year. HBL has recorded enough general provisioning during CY20 and continues to record subjective provisioning (PkR 2.4bn on certain stressed accounts)

– Domestic deposits have declined 1.3% over Dec’20 to PkR 2.5tn (market share of 13.8%) and advances reduced marginally to PkR 1.2tn since Dec’20.


1. What is the expected timeline for the implementation of IFRS-9?

The industry still awaits clarity on it.

2. When is the interest rate hike expected?

It is expected in 2HCY21 and would be in a gradual manner. A small rate hike might be seen in May21.

3. What is the composition of investments and yield on PIBs?

Out of the total investment in PIBs, 35% are floating rates and the rest is fixed rate PIBs. The average yield (fixed) is 9%.

4. Why was there an increase in NIMs in 1QCY21?

The bank’s NIMs expanded in 1Q to 5.2% against the guidance of 4.5% – 4.8% as the yield on securities increased. Additionally, significant growth in CA also lent support to NIMs expansion. However, NIMs would normalize in future.

5. How does the bank plan to grow Islamic business?

The bank plans to add 10 -15 branches and close some branches that are no longer required. With regards to Islamic branch network expansion, HBL plans to convert Islamic windows to branches going forward.

6. What is the bank’s guidance on loan and deposit growth?

The bank expects advances to grow by 12 – 13% and plan to maintain its deposit based market share of 14%.

7. Have the consultancy charges decreased in 1QCY21?

Consultancy and legal charges have normalized to ~ PkR 200mn and would remain low in the future as well.

8. What is the bank’s outlook on new Beijing branch?

Beijing branch will allow HBL to do more business in Pakistan under CPEC-II and other SEZs in Pakistan. HBL is sanguine of the outcome of the opening up of the Beijing branch and its interaction with Chinese clients.

9. What is the the exposure of bank to IPPs and the outcome of ongoing negotiations?

The IPP renegotiation is in MoU stage and IPPs are still expecting payments for the agreement to materialize. Given the new terms, this would not put a dent on the bank’s spreads.

We have an Outperform rating on HBL based on Residual Income Valuation with a target price of PkR155/sh. The stock offers a dividend yield of 5.2% and is currently trading at a one year forward P/Bv of 0.58x.

KASB Research

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