EUR 4.27 For Business Accounts Only

Flash Note: Habib Bank (HBL): 2Q2019 Conference Call Notes

• Habib bank limited (HBL) held its conference call today to discuss its financial performance for 1H2019. To recall, the bank posted an EPS of Rs0.44; down by 78%YoY in 2Q2019, while cumulative EPS for 1H2019 clocked in at Rs2.54; down by 54%YoY.
• The significant decline in profitability was primarily on account of market-based events like revaluation loss on FX position (Rs3.6bn) and impairment on listed securities (Rs 1.3bn). Going forward, the management plans to reduce the open position to curtail upcoming losses emanating from FX.
• Net Interest Income (NII) increased by 20% YoY or Rs7.8bn to which domestic NII contributed Rs6.5bn. International NII also registered an accretion of 14% (US$ 3.8mn) owing to improvement from Bahrain, UK and UAE region.
• Normalized non-funded income augmented by 13% YoY led by higher investment banking fee, trade & loans, and card related fee.
• The bank’s normalized admin related costs increased by only 10% YoY, however additional costs associated with New York branch (Rs 3.4bn), devaluation impact on overseas expenses (Rs1.2bn), and head office with other related cost (Rs 0.9bn) further jacked up overall admin expenses.
• The cost related to business transformation (BT) is expected to be completed in next 6-12months. The bulk of BT cost related to domestic branches has been incurred, while the bank will roll-over the cost to international franchises which are expected to be lower.
• The bank foresees the advances growth to be higher than industry and fall in the range of 9-12%, while deposits growth will continue to track the country’s M2 growth rate.
• The management plans to raise further Rs6.6bn (already raised Rs8.4bn) to jack up its ADT-1 during 2H2019. As per management, every Rs 1bn issue will enhance TIER-1 and total capital adequacy ratio (CAR) by 0.8bps resulting in a net increase by 0.5ppts from the current levels. The current CAR of HBL clocks around 15.1% (as of Jun-19).
• The management plans to rationalize bank’s Cost to Income ratio in next 18months. As per Jun-19 normalized Cost to Income ratio clocks around ~71%.
• Tax changes in FY19-20 budget will have a minimal impact on bank effective tax rate.