KEY RATING DRIVERS
The rating on HBL’s CD
programme reflects the financial strength of the bank and its track record of consistent
and superior operating performance through cycles, over similar rated peers. The
robust risk management systems have helped the bank to maintain stable asset
quality. The ratings also consider the bank’s strong funding profile, robust profitability
and above-average capital levels. Incrementally, the stress on HBL’s commercial
vehicle (CV) portfolio appears to be moderating given the uptick in the CV
cycle. Additionally, HBL’s solid pre-provision profitability continues to
provide a cushion even under Ind-Ra’s stress scenarios.
HBL’s common equity Tier I as of September 2015 was 12.78%. The bank is placed comfortably for the Basel-III transition even after considering its risk appetite and above-average growth plans. According to Ind-Ra’s estimates, the bank will sustain 22%-24% loan CAGR by March 2019 including additional capital buffers.
The bank’s gross NPL ratio was 0.9% in 2QFY16 (FY15: 0.93%), while the banking system’s gross NPL ratio increased to 4.3% in FY15 (FY14: 3.9%) and private sector banks were at 2.1% on a blended basis. HBL’s overall delinquency numbers on the retail portfolio remain stable and manageable.
The bank continues to show well-diversified growth across the retail and corporate sectors. Retail loan share was 52% at 2QFYE16 (FY15: 51%). HBL’s current and savings account ratio has been fairly robust, at around 40% at 2QFY16 (FY15: 44%). Its dependence on volatile and costly wholesale deposits is lowest among peer banks as retail accounts for the bulk of term deposits.
The bank’s strong funding profile yields low funding costs and high pricing power. HBL has maintained return on asset above 1.4% since FY11, while its stable dividend has contributed strongly to the internal capital accretion rate. With sluggish loan off-take impacting net interest income growth and credit costs staying close to cyclical lows, HBL’s focus on cost control through increasing technology focus and harvesting returns from its recent investment in rural/semi urban expansion would be key drivers for managing profitability in line with asset growth.
Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of the issuer, and therefore, India Ratings has been compensated for the provision of the ratings.
Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.