HBL sees central bank holding interest rates, eyes gradual easing in 2025

The management of Habib Bank Ltd. (HBL) expects the State Bank of Pakistan (SBP) to hold its policy rate at its upcoming May 5 meeting, citing the International Monetary Fund’s (IMF) board review as a likely factor in maintaining the status quo.

Looking ahead, the bank anticipates a gradual easing, projecting two modest 50-basis-point cuts before the end of the year.

During its analyst briefing, HBL struck a cautiously optimistic tone for fiscal 2025, highlighting a record-breaking surge in current accounts while signaling confidence in a stable monetary environment.

The bank reported that current accounts jumped by PKR 127 billion ($449 million) in the first quarter, marking the strongest quarterly growth in five years. This was underpinned by an 18% year-over-year rise in average current account balances, reinforcing HBL’s strategic pivot toward low-cost deposit mobilization to bolster funding stability.

Currently, the current account-to-deposit ratio hovers around 40%, but the bank aims to push it beyond 45%—a target management believes is within reach.

While deposit momentum remained the headline, HBL’s leadership also highlighted asset growth as a key driver moving forward.

Separately, HBL said it plans to refine its remittance methodology to further strengthen inflows and optimize performance in that segment.

The bank pegged its advance-to-deposit ratio (ADR) at around 44%, neatly within its target band of 42%–44%. That positioning, management said, reflects HBL’s measured approach to credit growth while continuing to channel funds into vital sectors.

“The bank has always walked the talk in terms of supporting the real economy,” officials said, emphasizing its continued leadership in lending to the agriculture and small- and medium-sized enterprise (SME) segments—areas often underserved by the broader financial system.

On the funding side, in the first quarter of 2025, HBL’s deposits rose 1.8% to PKR 4.5 trillion. The bank is forecasting deposit growth of between 15% and 20% in fiscal 2025, mirroring expected expansion in nominal GDP and broad money (M2). That pace, management noted, aligns with long-term trends and reinforces HBL’s strategy to grow organically alongside the economy it serves.

Loans declined 20% to PKR 1.9 trillion, bringing the loan-to-deposit ratio to 44%, in line with the full-year target of 42%–44%.

The investment portfolio stood at PKR 2.8 trillion, mainly in Pakistan Investment Bonds (floating: 48%, fixed: 25%), Treasury bills (12%), and other securities (15%), with fixed-rate bonds carrying an average duration of 0.96 years.

The infection ratio rose to 5.3% from 4.3% in December, while the coverage ratio remained strong at 88.2%.

HBL kicked off the year with a strong showing, posting consolidated earnings of PKR 16.6 billion in the first quarter of fiscal 2025—translating to earnings per share (EPS) of 11.3 Pakistani rupees, comfortably ahead of market expectations.

The boost was powered by a double-digit rise in net interest income, which surged 12% year-over-year to PKR 68.7 billion, as the bank managed to slash its interest expense by a hefty 36%. Meanwhile, a surprising 4.1 billion Pakistani rupee gain on securities helped push non-interest income up by 7%, further strengthening the result.

The bank’s cost-to-income ratio held steady at 56%, showing signs of operational discipline despite inflationary pressures pushing non-interest expenses up by 7%.

Even provisions declined 25% year-over-year, offering a welcome relief. Rounding out the positive surprises, HBL announced an interim dividend of 4.5 Pakistani rupees per share—a payout higher than anticipated.