VIS reaffirms entity ratings of HBL

June 29, 2023 (MLN): The VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Habib Bank Limited (PSX: HBL) at ‘AAA’ for long-term and ‘A-1+’ for the short term with a stable future outlook, the latest press release issued by VIS showed.

The previous rating action was announced on June 29, 2022.

The assigned ratings incorporate HBL’s position as the largest commercial bank in the country and its systemic importance to Pakistan’s financial sector, given its classification as a Domestic Systemically Important Bank (D-SIB) by SBP.

HBL advances growth rate remained higher than the industry, increasing its advances market share and Gross Advances to Deposit Ratio (ADR) 1.

HBL maintains favorable asset quality indicators with a low net infection rate and sufficient provisioning coverage as of Mar’23.

HBL's investment portfolio increased in Mar’23, primarily driven by increase in investment in Pakistan Investment Bonds (PIBs).

The portfolio consists mainly of low credit risk sovereign securities; however, these do expose the Bank to Interest rate risk.

With respect to market risk, HBL focuses on investing in Treasury Bills (T-Bills) with shorter durations and these decisions are continuously under review as per changes in the policy rate and expected market conditions.

HBL continues to maintain significant liquid reserves, providing ample cover to its liabilities.

HBL experienced a controlled deposit growth to maintain cost efficiency and focus on increase in current and low-cost deposits.

Nonetheless, the overall deposit composition is reflective of well-established network and access to low cost sources.

HBL's profitability shows growth, driven by increased net markup income and non-markup income.

However, the bank faces vulnerability due to significant holdings of PIBs (where the duration is being reduced) and an economic environment of elevated credit risk in term of advances.

Moreover, the financial risk profile of the Bank is expected to remain within the assigned ratings in the rating horizon.

HBL's Capital Adequacy Ratio (CAR) has faced a decline due to the impact of FX devaluation on overseas risk weighted assets and investments, along with, Mark-to-Market losses on PIBs and GoP Bonds.

As of Mar’23, HBL's CAR was lower than the median of large banks, but recovery is expected partially within the rating horizon.

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