HBL sees NIM boost ahead on higher lending rates

August 12, 2026 (MLN): The interest rate trajectory going forward is seen as largely dependent on developments surrounding the Iran conflict, according to a briefing session held to discuss Habib Bank Limited's (PSX: HBL) 1HCY26 financial performance.

Management expects Net Interest Margins (NIMs) to improve in the third quarter following the recent 100bps rate hike, as lending rates reprice with a lag while deposits have already adjusted.

Despite continued investment in branches, technology, and data analytics, cost-to-income ratio is expected to improve going forward as revenues benefit from higher rates.

HBL posted a consolidated profit after tax of Rs34.5bn (EPS: Rs23.51) for 1HCY26, up marginally by 0.3% YoY.

For 2QCY26 alone, consolidated PAT stood at Rs18.4bn (EPS: Rs12.51), up 3% YoY and 14% QoQ, accompanied by a cash dividend announcement of Rs6/share, taking total 1HCY26 dividend per share to Rs12.

Total revenue during the quarter rose 3% YoY to Rs189bn, driven by a proactive asset-liability management strategy, a 17% YoY rise in average domestic current account balances, and cost discipline that kept operating expense growth contained.

Net Interest Income for 1HCY26 rose 2% YoY to Rs140bn, with repricing benefits expected to support NIMs further in the second half, provided the policy rate holds steady.

Total deposits reached Rs5.9trn as of Jun-2026, up 14% YoY and up by Rs400bn since Dec-2025. Domestic current accounts grew by Rs387bn during the same period to Rs2.2trn, a 22% rise from Dec-2025, lifting the current account mix from 36% to 44%.

Growth was attributed to targeted efforts around SMEs, revamped Karobar accounts, the Prestige segment, and an improved customer value proposition, with average domestic CA balances up 17% YoY (Rs236bn) in 1HCY26.

Management indicated this focus on deposit stickiness is expected to continue and accelerate further in the second half, with the bank aiming to grow deposits sustainably and regain market share without compromising profitability.

On the lending side, the total loan portfolio stood at Rs2.14tr as of 1HCY26-end, with domestic advances up 7.8% YoY, rising from Rs1.519tr in Dec-2025 to Rs1.581tr in Jun-2026. The international loan portfolio increased by $12m during the period.

Growth in advances going forward is expected to be supported by government initiatives aimed at boosting private-sector credit and economic activity, with continued focus on SME, consumer, agriculture, and mortgage segments alongside large corporate lending opportunities.

Asset quality remained stable, with the infection ratio at 4.6% as of 2QCY26 and coverage at 84.7%, with management expecting asset quality to remain robust barring major external shocks.

The investment portfolio stood at Rs4.5tr as of Jun-2026, comprising 54% in Floater PIBs (Rs2.4tr), 24% in Fixed PIBs (Rs1.1tr), 14% in T-bills (Rs636bn), and the remainder in other securities.

The fixed-income portfolio yielded around 12% with a duration of approximately 2.25 years, while overall portfolio duration stood at 0.94, translating to roughly 6-7 months due to the floating-rate composition.

Management noted that during June and July, the bank tactically reduced investments as market yields fell and some securities offered negative carry relative to borrowing costs; as yields have since moved back to more attractive levels, the bank has resumed rebuilding its investment book.

Cost-to-income ratio at the group level rose from 55.6% in 2025 to 57.2% in 1HCY26, which management attributed largely to revenue decline rather than cost growth, noting operating expenses rose just 6% during the period, below the industry average.

The bank reiterated its focus on cost discipline without diluting its customer value proposition.

The branch network expanded by 53 new branches during 1HCY26, taking total branches including HBL Microfinance Bank to 2,000, with 35% of the network now converted to Islamic banking.

Branch expansion continues to focus on deposit growth, new business centers, and relocation of older branches, alongside sustained investment in digital channels.

Digital payment transactions now account for 93% of total transactions against 7% over-the-counter, with mobile banking payments crossing Rs7trn and overall digital payments up 20% YoY in 1HCY26.

On the foreign exchange side, higher FX income was primarily attributed to increased customer volumes from trade and remittances, with the remaining 25% coming from positioning.

Remittance market share rose sharply from 6% to 12-14% during 1HCY26, and following changes to remittance incentives, management outlined a multi-pronged strategy going forward focused on maintaining FX flows, better utilization of remittance funds, and improved incentive structures.

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