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Habib Bank (HBL): 3Q2018 Conference Call Notes

• Habib Bank Limited (HBL) reported 3Q2018 earnings of Rs1.15/share, down by 82% YoY (3Q2017 earnings adjusted for New York State Department of Financial Services US$225mn penalty on HBL). The decline is primarily due to high provision for diminution in value of investments, high expense growth as well as flattish net interest income growth.
• As per the management, impairment on investments (Rs1.8bn) has been booked due to poor stock market performance but potential for reversal exists given market continues its recent bull run.
• On admin expenses, the management restated its previous stance that non-interest expense will normalize post 1H2019. The Bank also informed that excluding expenses related to NY operations, pension charge and business transformation, normalized expense growth is in single digits.
• During 9M2018, expenses include Rs4.7bn pertaining to NY operations, Rs2.5bn related to business transformation and Rs1.9bn pension charge. Moreover, Rs0.8bn of expense is due to impact of rupee devaluation on overseas expenses of which Rs400mn is attributable to 3Q2018.
• Fee income has declined primarily due to lower share in home remittances segment. Management believes that non-interest income will show a much better performance in 4Q2018.
• On dividends, management says its focus will remain on maintaining strong capital adequacy, however, as earnings improve going forward, there is potential for better payout.
• The Bank also intends to focus on digital banking and be a market leader in this segment. HBL’s branchless banking platform, Konnect, has 32,000-33,000 agents while 900,000 clients have been on-boarded. The Bank expects further 2-3mn clients through Konnect in 2019.
• Gross NPLs have increased by Rs2.3bn over Dec 2017 due to a Rs3.3bn impact of currency devaluation on overseas NPLs while domestic NPLs have reduced by Rs1.9bn in the same period. However, asset quality has improved to 7.6% (vs 8.2% Dec 2018). Domestic advances growth was recorded at 16.7% while overseas advances decreased by 21.5%.
• Domestic current account deposits have increased by 9.6% over Dec 2017, while the mix has improved to 37.3% up by 1.7ppts since Dec 2017.