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HBL - CY23 Analyst Briefing takeaways, (AKD Off the Analyst's Desk Mar 07, 2024)

Habib Bank Ltd (HBL) held its analyst briefing earlier today, during which the management discussed the following:

• Regarding business segments, bank’s international business reported a PBT of US$21.4mn, while the group’s PBT on a consolidated basis amounted to PkR113.6bn (up 47%YoY) during CY23.
• Bank’s fee income experienced a growth of 35%YoY, primarily driven by the card segment, which grew by 50%YoY during the year.
• The company's domestic expenses surged by 31%, partly attributed to the currency's devaluation. This is due to the bank employing technological solutions from international vendors. Additionally, forex payments to Visa/Mastercard also played a role in higher opex.
• Bank’s provisions rose by PkR5.7bn during CY23, with the majority of the charge attributable to one borrower, who has been problematic for the entire industry. Moving forward, management does not foresee any major NPLs and remains comfortable with the asset quality levels.
• Management expects ROE to stabilize around 16-18% moving forward. This is due to the bank's status as a D-SIB , which necessitates maintenance of additional capital.
• Bank recently inaugurated a subsidiary i.e. HBL Zarai, primarily focused on the agricultural sector. The company will serve as a partner to small farm owners, offering solutions to their farming requirements including storage setups, equipment financing etc. Bank is expected to invest PkR7.5bn over a span of five years, where PKR2.0bn is to be injected in CY24.
• Bank forecasts 18-19%YoY growth in deposits while advances are expected to increase by 12-13%YoY during CY24.
• With regards to monetary easing, management sees the central bank proceeding with caution, closely monitoring inflation readings. However, they foresee a potential rate cut in April'24 if CPI numbers for the current month remain encouraging. Management anticipates the policy rate to settle at 17% by the end of CY24.
• Islamic banking remains a growing part of HBL’s business, and  management intends to persist with the conversion of existing branches into Islamic Banking branches
• Regarding investment mix, bank holds securities worth PkR1.95tn in the banking book, with half of them floating-rate PIBs. The average yield on banking book stands at 19.6%, while yield on the trading book is at 21.6%.
• With the applicability of IFRS-9, management expects the general provisioning requirement to be replaced by the ECL requirement. They anticipate an impact of PkR19bn due to the implementation of ECL. However, this charge will be staggered over five years, with only 10% (PkR1.9bn) of the amount being reflected initially.
• With regards to legal expenses of PkR10bn, management stated those were incurred for legal counsel services hired by the bank.
• With regards to strategy on OMO transactions, management prefers to remain prudent, stating they do not intend to further leverage the bank's balance sheet. Consequently, they expect to maintain OMO borrowings below 10% of the deposit base.
• Management anticipates maintaining the current dividend distribution policy, provided there are no significant macroeconomic shocks moving forward.