HBL: 4QCY20 Earnings Call Key Takeaways

§  Karachi, February 22, 2021: The Bank’s management is embarking on a profit retention/capital conservation strategy, in order to finance several growth projects, which are expected to contribute to profitability over the next 3-5 years. Hence, we believe current level dividend payout is likely to remain unchanged despite earnings growth.

§  The Bank is also slightly capital strapped due to higher MCR requirements, and hence, buffers need to be enhanced. Implementation of IFRS-9 to wipe-out 0.30%-0.40% of the Bank’s eligible capital. The Bank may raise additional Tier-I capital but does not have plans for a rights issue. 

§  The Bank is targeting a strategy of consolidating its position as the pre-eminent Bank of Pakistan, aligning its business to economic growth initiatives. Internationally, the Bank aims to focus on developing its wholesale business along with wealth management around corporate clientele, including Chinese corporates via its Beijing Branch. Formal inauguration of Beijing branch expected end to Mar’21.

§  The Bank’s cost base is expected to remain slightly higher than CY20 going forward due to its growth initiatives. However, overall cost-to-income ratio is expected to drop to ~50% in next two years. Currently, it is around 58%. Plus, for domestic business, cost to income ratio is expected to fall to ~40% in next two years.

§  ~35% of the Bank’s PIBs are Floaters. Duration of fixed rate PIBs is 2 years. Total portfolio duration is slightly above 1 year. The Bank attracts additional tax on income from Government securities, hence, its effective tax rate is high.

§  The management expects NIMs to compress further, averaging around 4.75-5.00% for CY21. Further, the management expects SBP to raise interest rates May’21 onwards. Outlook on PKR/USD parity is stable.

§  The Bank expects to disburse another PKR 35-40Bn under TERF and PKR 10Bn in construction loans during CY21. The Bank also plans to have 300 Islamic branches by CY21 end.

§  Market share in the trade finance has improved to 11% during CY20. Whereas, HBL has 18-19% share of RDA flows.

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