Hbl Operational Management

Lahore School of Economics

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Final Project

Habib Bank Limited

(Credit Rating Analysis from 2012 to 2015)

Credit Rating

MBA-II: 1st Semester

Section: A

Finance Majors

Submitted To

 Dr. Nawazish Mirza

Submitted By

Sidra Mahmood

Rameez Faheem

Habib Bank Limited

Rating (September 2015)

Long term        AAA+
Short-term         A1+

RATING RATIONALE

ASSESMENT

• The ratings reflect HBL ability to sustain its strong performance and maintain the low risk profile of its assets amidst an increasingly competitive operating environment. The ratings also recognize the management’s conscious efforts of continuously strengthening the risk management systems.
• HBL, in terms of total assets, has registered a modest increase in its system share during Q3: 2015. The bank also expanded the branch network to 1644 (end-2014, 2013:  1547). Meanwhile, the average growth in credit has maintained the credit-to-deposit ratio. The bank’s loan book remained dominated by working capital/short term financing (around 73%) with continuing thrust on trade financing of corporate sector. There was no increase in consumer financing, its share (6.5%) remains low.
• HBL’s performance – measured in terms of both ROA and ROE – showed a decent improvement. This was mainly on account of improvement in core operations and substantially higher other operating income. Net interest revenue, with largely maintained spreads, increased in line with volume growth. The fee-based income increased owing to enhanced foreign trade business & Bancassurance, which remained a stable source of revenue. The bank, with increased focus on the treasury function, also earned from dealing in foreign currencies. The total net revenue was boosted by the sizeable gains realized on sale of investment (Mainly Q3:2015). The bottom line was also flattered by the tax which increased in 2015 because of deferred taxes.
• Going forward, the active shedding of high cost deposits and current account growth resulted in a 16 bps drop in the cost of deposits while the shifting of the investment portfolio from short term T-Bills to long term PIBs was reflected in a 32 bps increase in overall asset yields. For the expansion of its credit portfolio, the bank’s primary reliance would remain on self-liquidating running financing. Additionally, the management is planning to i) concentrate on rural areas ii) Islamic Banking iii) branchless banking and iv) to grow internationally. These initiatives while helping in increasing volumes would also add further diversification to the advances portfolio.
• HBL continues to maintain very good asset quality. The bank, with a combination of recoveries and limited incidence of fresh infection, managed to further reduce the impaired portfolio. NPLs, as a percentage of total finances, have come down to 1% at end of Q3:2015. Effective credit administration and monitoring has helped the bank in containing fresh loan infection. While recoveries against chronic cases were not substantial, the legal course is being pursued actively. The management continued with its policy of augmenting the provision coverage, particularly through making additional general provision against consumer financing portfolio, thereby reducing the potential risk of loss.
• The bank’s equity in total assets, with measured dividend distribution and substantial profitability, has improved further despite significant increase in assets base during Q3: 2015. The Capital Adequacy Ratio at Q3-2015, in spite of change in asset mix towards risk-weighted assets, was maintained and it was high enough that HBL neither required the need of sub-ordinated loans nor they have issued any TFC’s in order to support it.

BACKGROUND

HBL operates with more than 1650 branches inside Pakistan including 43 Islamic Banking Branches and 48 branches outside the country including Karachi Export Processing Zone (KEPZ), commenced its operations in 1947. Aga Khan Fund for Economic Development remains its principal shareholder controlling the Board of Directors through its nominees. HBL has business interests spread across a wide range of economic and industrial sectors.

HBL offers a full range of commercial banking services to the corporate, middle market and retail segments. The bank has established an image of efficiency and professionalism, attributable in part to its policy of maximum technology utilization – offering facilities such as online real-time banking, ATM’s, internet and telephone banking, and cash management services.

The current President & Chief Executive has over 32 years of international and domestic banking experience. A senior management team of distinguished professionals assists him.

1. PROFILE

1.1 HBL commenced its operations in 1947 and, through sustained asset growth, has emerged as one of biggest bank in the commercial banking sector of the country. Aga Khan Fund for Economic Development remains its principal shareholder of 20%, controlling the Board of Directors through its nominees. As HBL has continued to record a high deposit growth rate over the years, the proportion of the individual deposits has leveled off. However, it still constitutes around half of the total deposit base. Which adds an element of stability.

1.2 The President & CEO of Habib Bank Limited, is a banker with over 32 years of banking experience. He also serves as Chairman of Habib Finance International Limited, Hong Kong and Chairman of Habib sons Bank Limited, UK. He is also Director of Habib Allied International Bank Plc, UK.

1.3 HBL operates through an on-line real-time connected network of branches & ATM (2100 end-Dec 2014) spread across Pakistan, with the Bank’s Registered office is at Habib Bank Tower, 4thFloor, Jinnah Avenue, Islamabad and Principal office is at Habib Bank Plaza, I.I.Chundrigar Road, Karachi. The management views the continued expansion of the branch network as a key element for sustaining its competitive edge and growth across Pakistan and abroad.

1.4 The bank has built an image of efficiency and professionalism, through continuous technology up gradation. HBL has fully automated transaction- processing systems for back-office support. All ATMs of the country now share the same switch after the link between 1-Link and M-Net. HBL also offers its customers telephone and internet banking facilities. Mobile payment services were launched under the banner of HBL Express. This has enabled provision of banking solutions to the unbanked at their fingertips. Partner alliances are enabling us to grow the agent network in a cost effective and rapidly scalable manner, to further improve banking access. Through our technology solutions, we have become one of the leading solution providers for G2P payments spanning the country from the desert in Thar to the mountains of the Karakoram.