AKD Securities Limited – Off the Analyst’s Desk (March 27, 2023)

Karachi, March 27, 2023 (PPI-OT): HMB: Analyst Briefing Key Takeaways

Habib Metropolitan Bank Limited (HMB) held its analyst briefing earlier today to discuss the bank’s financial performance during CY22. The key highlights from the session are as follows:

To recall, the bank posted unconsolidated earnings of PkR14.3bn (EPS: PkR13.6) in CY22, higher by 6% compared to the same period last year-marking the highest ever profit recorded by the bank. HMB’s Net interest income for CY22 saw an increase of 38%YoY, clocking in at PkR40.6bn.

The bank’s deposits grew by 14% during CY22, to end the year at PkR880.7bn. The bank’s CA at the end of the year stood at 34.8%, largely flat when compared to the same period last year. The CASA has improved from 69.3% in CY22 from 65.8% in the previous year. The average cost of deposits for the bank increased to 7.2% in CY22, compared to 3.8% in CY21, driven by the heightened interest rates in the country.

Advances for the bank grew by 8.8%YoY to PkR433.5bn as at CY22 end. Sector-wise, ~42% of total advances were extended to the textile sector, which is facing challenges in the form of slowing exports and heightened costs of doing business. The bank is of the view that the extent of the risk on these loans is to delays in payments and/or restructuring of loans, and does not see major defaults in the same.

HMB’s advances at the end of CY22 clocked in at PkR723.6bn, 8.3% higher than those at CY21 end. 97% of the bank’s investment portfolio was held in Federal Government instruments. 40% were held in Market Treasury Bills, while another 33% were held in Floating Rate PIBs. Hence, 73% of the bank’s investment portfolio is primed to benefit from heightened interest rates.

In terms of asset quality, the bank apprised that the infection ratio for HMB had dropped to 4.8%, compared to 7.3% in CY18. Furthermore, the bank has increased its coverage to north of 100%. The bank is building provision cover in order to shield itself from any economic shocks on the horizon, along with the adverse impacts.

HMB’s cost-to-income ratio clocked in at 42.1% for CY22, slightly higher than the 42.0% recorded for the earlier year.

The bank is operating a network of 500 branches, spanning across 194 cities. 12.2% of the total branches are operating an Islamic window. The share of Islamic deposits is also in tandem, making up ~12% of total deposits. The bank aims to increase the proportion of Islamic branches in its network.

Going forward, the bank’s management guided towards focusing on efficient growth in its deposits. Furthermore, management apprised that the bank would be prudent in its lending practices, as it saw economic challenges brewing on the horizon. Hence, the bank is expecting high NPL charges in CY23.