HBL: Key Takeaways from 1QCY20 Management Con Call

KARACHI – HBL 1QCY20 earnings came out at PKR 4.1 Bn (EPS: PKR 2.79), translating into a YoY increase of 34%. On a sequential basis, however, the profitability of the bank declined by 39% QoQ. Earnings announcement remained unimpressive owing to a surge in operating expenses of the bank and losses on FX operations (due to PKR depreciation).

The effects of the pandemic are likely to be visible through weaker fee income growth. As trade and overall business activity suffers, subdued Non-Interest Income will dent banking sector profitability.

Overseas costs increased by PKR 1.4 Bn due to earlier than expected winding down during 1QCY20. Expedited occurrence of this cost, the management expects to see improvement on the cost side from 2QCY20 onwards.

HBL impaired its equity portfolio value and booked expense of PKR 0.2 Bn during the quarter (25% of total impairment). Apart from equity provisions, increase in loan provisions was recorded during the quarter mainly on account of provision charge of PKR 0.5 Bn from the International business. The increase in provisions from international business offset net reversal of PKR 0.2 Bn from the domestic operations.

Total NPLs of the bank have declined by PKR 1.2 Bn despite PKR 2.3 Bn increase recorded from the impact of Rupee devaluation on overseas NPLs. The bank has also increased its coverage ratio from 93.2% to 93.4% in Mar’20 quarter.

The management of HBL expects loan and deposits growth to remain weak going forward due to COVID-19 pandemic. HBL’s deposits recorded attrition of 2.5% to PKR 2.4 Trn during the quarter. On the advances side, overall exposure increased by a meager 1% to PKR 1.2 Trn with ADR standing at 49.6%.

Management expects suspension of dividend payments for the next two quarters to bode well for the bank’s CAR. Currently, HBL’s CAR stands at 15.39%. The bank had announced DPS of PKR 1.25 along with 1QCY20 results.

Accumulation of high yielding PIBs last year helped the bank improve its investment yields. Apart from improvement in yields, continued loan re-pricing helped the bank post improvement in its NIMs.

The bank is keeping 20-25% of its branches shut for the time being. In these unprecedented times, bank’s recent investment in its digital initiatives such as Konnect is helping it serve its clients. Significant increase in number of new Konnect accounts has been recorded in the past 3-4 weeks.

The management opines that requests for deferral of mark-up from its customers were limited and the bank is considering earlier re-pricing for SME, Agriculture and Individuals segment to help them weather the crises.