Habib Bank Limited expects its net interest margins to improve in the third quarter of calendar year 2026 as lending rates begin to reflect the recent 100 basis point increase in the policy rate, according to management during a briefing on the bank’s first half calendar year 2026 financial performance. Management said the future direction of interest rates will depend largely on developments surrounding the Iran conflict, while the recent rate increase is expected to support margins as lending rates reprice with a lag and deposit rates have already adjusted. The bank also expects its cost-to-income ratio to improve going forward as higher interest rates support revenue growth, despite continued spending on branches, technology and data analytics. HBL reported consolidated profit after tax of Rs34.5 billion for 1HCY26, with earnings per share of Rs23.51, representing a marginal 0.3% year-on-year increase. For the second quarter alone, consolidated profit after tax reached Rs18.4 billion, up 3% year on year and 14% quarter on quarter, while the bank announced a cash dividend of Rs6 per share, taking the total dividend for the first half of the year to Rs12 per share. Total revenue in the quarter increased 3% year on year to Rs189 billion, supported by active asset-liability management, a 17% increase in average domestic current account balances and controlled operating expenses.
HBL’s net interest income increased 2% year on year to Rs140 billion during the first half of calendar year 2026, with management expecting the benefit from loan repricing to provide additional support to net interest margins during the second half if the policy rate remains stable. The bank’s deposit base also expanded considerably, reaching Rs5.9 trillion as of June 2026, representing a 14% year-on-year increase and an addition of Rs400 billion since December 2025. Domestic current accounts increased by Rs387 billion during the same period to Rs2.2 trillion, marking a 22% increase from December and raising their share of the domestic deposit mix from 36% to 44%. Management attributed the growth to targeted efforts in the small and medium enterprise segment, revamped Karobar accounts, the Prestige segment and an improved customer value proposition. Average domestic current account balances increased 17% year on year, equivalent to an increase of Rs236 billion during the first half. HBL said it intends to continue strengthening deposit stickiness and accelerate these efforts in the second half, with the objective of achieving sustainable deposit growth and recovering market share while maintaining profitability.
On the lending side, HBL’s total loan portfolio stood at Rs2.14 trillion at the end of the first half, while domestic advances increased 7.8% year on year from Rs1.519 trillion in December 2025 to Rs1.581 trillion in June 2026. The international loan portfolio also increased by $12 million during the period. Management expects future advances growth to receive support from government initiatives designed to encourage private-sector credit and economic activity. The bank intends to maintain lending activity across small and medium enterprises, consumer finance, agriculture and mortgages, while also pursuing opportunities among large corporate customers. Asset quality remained stable during the period, with the infection ratio recorded at 4.6% in the second quarter and coverage at 84.7%. Management expects asset quality to remain robust in the absence of major external shocks. HBL’s investment portfolio stood at Rs4.5 trillion as of June 2026, consisting of 54% in floating-rate Pakistan Investment Bonds worth Rs2.4 trillion, 24% in fixed-rate Pakistan Investment Bonds worth Rs1.1 trillion, 14% in Treasury Bills worth Rs636 billion and the remaining amount in other securities. The fixed-income portfolio generated a yield of around 12% with a duration of approximately 2.25 years, while the overall portfolio duration was 0.94, equivalent to roughly six to seven months because of the large floating-rate component.
Management said HBL tactically reduced investments during June and July as market yields declined and certain securities began generating negative carry relative to borrowing costs. As yields subsequently moved back to more attractive levels, the bank resumed rebuilding its investment portfolio. At the group level, the cost-to-income ratio increased from 55.6% in 2025 to 57.2% during 1HCY26. Management attributed the increase mainly to lower revenue rather than excessive cost growth, noting that operating expenses increased by only 6% during the period, below the industry average. The bank reiterated that cost discipline would remain a priority without reducing its customer value proposition. HBL also expanded its physical footprint, adding 53 branches during the first half of the year and taking its total branch network, including HBL Microfinance Bank, to 2,000 locations. Around 35% of the network has now been converted to Islamic banking. The branch expansion strategy remains focused on deposit generation, establishing new business centres and relocating older branches, while the bank continues to invest in digital channels. Digital payment transactions accounted for 93% of total transactions compared with 7% conducted over the counter. Mobile banking payments exceeded Rs7 trillion, while overall digital payment activity increased 20% year on year during the first half of CY26.
HBL also reported stronger foreign exchange activity during the period, with higher foreign exchange income primarily attributed to increased customer volumes from trade and remittances, while approximately 25% of the income came from positioning activities. The bank’s share of the remittance market increased substantially from 6% to between 12% and 14% during the first half of calendar year 2026. Following changes to remittance incentives, management outlined a multi-pronged approach aimed at maintaining foreign exchange flows, improving the utilisation of remittance funds and developing more effective incentive structures. The bank’s overall strategy for the remainder of CY26 is therefore centred on benefiting from the repricing of lending assets, maintaining deposit growth, expanding targeted lending and managing operating costs while continuing investment in physical and digital banking infrastructure. If the policy rate remains stable, management expects the delayed repricing of lending rates to provide further support to net interest margins in the third quarter. At the same time, the bank will continue monitoring external developments, particularly those affecting the interest rate environment, foreign exchange flows and asset quality. HBL’s first-half performance reflects growth in deposits, advances, digital transactions and remittance market share, while management expects these areas, together with improved lending yields, to support financial performance during the second half of the year.
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