EUR 4.27 For Business Accounts Only

Habib Bank (HBL): 1Q2019 EPS of Rs2.1, down 33% YoY (+26% QoQ); DPS of Rs1.25/share (In-line with expectations)

• Habib Bank Limited (HBL) reported earnings of Rs2.1/share, down by 33% YoY in 1Q2019. Earnings were lower YoY mainly due to higher operating expenses and significantly higher effective tax rate.
• Net interest income of the bank grew by 19% YoY mainly owing to higher interest rates.
• The banks’ non mark-up interest income recorded a robust growth of 22% YoY in 1Q2019. This was on the back of 18% YoY growth in fee & commissioning income (~80% of non mark-up interest income) and foreign exchange gain of Rs452mn on treasury operations. To note, the bank booked foreign exchange loss of Rs394mn in 1Q2018.
• Non mark-up expenses of the bank recorded a considerable growth of 21% YoY during the outgoing quarter, primarily owing to higher operating expenses, +21% YoY. We attribute this to expenses related to HBL’s international operations.
• While pretax earnings were increased by 14% YoY in 1Q2019, net earnings were lower by 32% YoY as a result of higher effective tax rate, +26ppts to 62%.
• To note, the govt. in its last economic reforms package imposed super tax on banks for the year 2017 to 2020, due to which banks will now have to book additional super tax (2017 annual earnings) in 1Q2019. In its 2018 annual accounts, HBL stated the financial impact of this super tax at Rs1.9bn.
• Key risks for HBL includes: 1) delay in expected hike in interest rates, 2) lower than expected advances growth, 3) deterioration of Pakistan macros, and 4) Further penalties on international operations.