Habib Bank Limited (HBL), Pakistan’s largest commercial bank, has reported a commendable Rs120 billion in pre-tax profits for the full year of 2024, marking a 6% increase year-on-year. The bank also declared a final dividend of Rs4.25 per share, bringing the total annual payout to Rs16.25 per share. While the bank achieved record profitability, the path to these gains became increasingly difficult in the latter half of the year, primarily due to shifting economic factors. However, HBL’s strong non-core income growth helped offset the challenges posed by a sharp decline in interest rates, allowing the bank to maintain its upward trajectory.
The overall business environment in the second half of 2024 posed a number of challenges for HBL. One of the primary hurdles was the decline in Net Interest Margins (NIMs), a consequence of a steep drop in interest rates. Despite this, the bank’s robust non-core income helped cushion the impact of the declining NIMs. Non-core income growth was driven by several factors, including capital gains on government securities, the closure or sale of branches, and steady contributions from the bank’s card business, commission income, and merchant discounts.
HBL’s balance sheet expanded by 9% year-on-year, reaching a total of Rs6.1 trillion as of December 2024. On the asset side, the bank’s investment portfolio faced some challenges. Investments, which had been a key driver of growth, saw a 1% decline compared to the previous year. The most significant drop occurred in the fourth quarter of 2024, as the banking industry as a whole underwent significant asset re-profiling. HBL’s investment portfolio shrank by 20% during this period, a decline of Rs650 billion. This resulted in the Investment-to-Deposit ratio falling to 58%, the lowest in recent memory.
In contrast, HBL’s advances portfolio experienced substantial growth, increasing by 31% to reach Rs2.4 trillion by the end of 2024. This marks a major milestone for the bank, as its advances portfolio is now nearly on par with its investments for the first time in a long while. Much of this growth in advances came from corporate and commercial lending, as banks, including HBL, sought to maintain their Asset-to-Deposit Ratios (ADR) above 50% in light of the falling interest rates. The corporate and commercial segment showed strong performance, making up around 55% of the total advances, growing by 31% year-on-year.
The composition of HBL’s lending portfolio showed notable changes as the bank adapted to the market conditions. While traditionally not a major area of lending, financial institutions accounted for 11% of HBL’s advances by the end of 2024. This marked a significant increase, with the bank’s financial institution lending rising from Rs52 billion at the end of 2023 to Rs271 billion at the end of 2024. The consumer, SME, and agriculture lending categories saw more modest growth, with the consumer and agriculture portfolios making up nearly 80% of this segment. SME lending, however, remained limited, accounting for just 3% of total lending at Rs62 billion.
HBL’s deposits grew by a modest 5.5% to reach Rs4.4 trillion at the close of 2024. However, the bank’s deposit base experienced a significant decline in the fourth quarter of 2024, shedding nearly Rs400 billion during this period. Despite this, the bank continued to see an improvement in its CASA (Current and Savings Accounts) ratio, which rose to 87.3%. This increase was driven entirely by growth in low-cost and no-cost deposits, an important indicator of the bank’s efficient management of its funding costs.
The outlook for HBL in the first quarter of 2025 appears to be less optimistic, as the lending boom is likely to slow. Early data from the central bank indicates a reduction in advances growth, and further asset re-profiling is expected to continue throughout the first half of 2025. By the end of the first quarter of 2025, HBL’s balance sheet could look markedly different from the current one, as it adjusts to evolving economic conditions and regulatory changes.
Overall, HBL’s performance in 2024 underscores its ability to navigate challenging conditions, particularly in the face of fluctuating interest rates and shifting market dynamics. However, as the lending landscape changes and the growth of advances slows, the bank will need to continue adapting its strategies to maintain its competitive edge.