HBL Analyst Briefing: Closure of New York branch helped in curtailing the costs

July 27, 2020 (MLN): Habib Bank Limited (HBL) on Monday held a conference call, wherein the management of the bank discussed the latest financial performance, as well as the future prospects of the bank.

To recall, HBL had announced its financial results for the 1HCY20 on Friday, as per which, the bank had reported over three-fold increase in consolidated net profits to Rs 15 billion (EPS: Rs 10.32). The bank’s consolidated total profit was Rs 3.92 billion (EPS: 2.53) in the same period of last year. The quarterly results showed a profit of Rs. 45.9 billion, which is around 79% higher than the earnings of the previous quarter.

The projections as well as the subsequent review carried out by most of the brokerage houses indicated that the improvement in earnings was due to a reduction in the revaluation loss on the open FX position and curtailment in the bank’s operating expenses following the closure of the New York branch.

According to Foundation Securities, the management of HBL informed that the growth in NII of the bank was due to ‘reflection of monetary easing on re-pricing of deposits, as well as growth in balance sheet’. However, the management does not expect this growth to continue in the next two quarters and in fact, expects the margins as that is when the impact of lower interest rates would start to materialize.

Regarding the non-interest income, the management stated that the growth was due to capital gain realization on fixed PIBs that negated the impact of the decline in fee income due to reduced business activity amidst the COVID-19 outbreak. In the upcoming quarters, the management said that it is hopeful of an increase in non-interest income due to contribution from bancassurance and investment banking fees.

As mentioned before, the closure of HBL’s branch in New York has helped in bringing down the expenses of the bank. This is apparent by the difference in the quarterly cost of CY19 and CY20, which shows a decline of $13 million.

An increase in provisions backed by an increase in demand for provisions due to the COVID-19 pandemic also helped in boosting the earnings for the aforementioned period. The report further informed that the increase in provisions was due to large ticket exposure and $4.2 million IFRS related ECL charges.

Talking about its future endeavors, the management informed that HBL is planning to increase its exposure towards end mortgage loans/builders and developers once the exact mechanism is finalized by the Government and State Bank of Pakistan.

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