Contents

History and Background............................................................................................. 3

Products and Services Offered by HBL.......................................................................4
Individual customers:.............................................................................................. 4
Business Customers:............................................................................................... 5
Islamic Banking....................................................................................................... 7
Core and Non-Core Activities...................................................................................... 8
Analysis of balance sheet and Income Statement......................................................9
Profitability and Efficiency Analysis..........................................................................11
Expense Control Measures and Analysis...................................................................16
Credit Risk Analysis.................................................................................................. 17
Liquidity Risk Analysis.............................................................................................. 18
Market Risk Measure Analysis.................................................................................. 18
Solvency and Capital Adequacy............................................................................... 19
Conclusion:............................................................................................................... 20
Recommendation..................................................................................................... 21

History and Background

HBL established its operations in Pakistan in 1947 and moved its head office
to Karachi. HBLs first international branch was established in Colombo, Sri
Lanka in 1951 and Habib Bank Plaza was built in 1972 to commemorate the
banks

25th

Anniversary.

It

is

situated

in

Karachi.

With a domestic market share of over 40%, HBL was nationalized in 1974
and it continued to dominate the commercial banking sector with a major
market share in inward foreign remittances (55%) and loans to small
industries, traders and farmers. International operations were expanded to
include the USA, Singapore, Oman, Belgium, Seychelles and Maldives and
Netherlands.
On December 29, 2003 Pakistan's Privatization Commission announced that
the Government of Pakistan had formally granted the Aga Khan Fund for
Economic Development (AKFED) rights to 51% of the shareholding in HBL,
against an investment of PKR 22.409 billion (USD 389 million). On February
26, 2004, management control was handed over to AKFED. The Board of
Directors was reconstituted to have four AKFED nominees, including the
Chairman and the President/CEO and three Government of Pakistan
nominees.

With a customer base of 5 million and a network of more than 1,450

branches in Pakistan, HBL is the largest private bank in the country. Its
network means that it is geographically closer to its customers than any
other bank. This gives them the insights needed to provide a variety of
products that directly reflect customer needs

Products and Services Offered by HBL

Products and services offered by HBL are divided into three sections:
1) Individual customers
2) Business customers
3) Islamic banking

Individual customers:
Products and services offered by HBL to its individual customers include the
following:
a)
b)
c)
d)
e)
f)
g)
h)

HBL ATM
HBL internet banking
HBL mobile banking
Debit card
Utility bills payments
Mobile post paid bills payments
HBL credit card bill payments
Car loans

i)
j)
k)
l)

Choice of used, new local/imported and reconditioned imported

car.
Repayment options ranging upto 7 years.
Upto 85% of financing for the car of your choice.
Insurance at all times for complete peace of mind and security.
Credit cards
Home loans
Deposit accounts
Credit cards
3

m) Phone banking

n) BancAssurance
Amaan
Pension plan that ensures income through investment in
balanced portfolio

Tabeer
Tabeer is a plan that provides parents with a means to
accumulate a fund over a period of time which can then be
used to pay for a childs education or marriage

o) Fast transfer
p) Mutual funds
q) Salary plus

Business Customers:
Products and services offered by HBL to its business customers include the
following:
a) Corporate banking

Pre and Post Shipment Export Financing (PKR and USD based)

Import Financing (PKR and USD based)

Receivable Discounting

Cash Management Services

Trade Services including Letter of Credit, Letter of Guarantee and

Standby Letter of Credit, etc.

Working Capital Finance, including Overdraft, FE Loans, etc.

4

b) Commercial banking

Working Capital

Procurement of Inventory

Receivables

Procurement of Machinery

Expansion of production facilities

Import of raw materials

Exports

Guarantees

c) SME banking

A flexible and convenient account to manage the payments and

receipts of your business

Running Finance to help you manage your daily cash flows

Demand Finance to help you expand your business, renovating

your business premises or buying new equipment

Assure payments from your customers in Pakistan or overseas

through trade finance products

d) Global treasury
Risk advisory
Money market
Sales
Derivatives
Equity
5

e) Investment banking
Project finance
Debt capital markets (syndicates, securities, commercial papers

f) Cash

etc)
Equity and advisory
management
E-banking
Online cheque payments
Viewing accounts through E-banking

g) Zaraii banking
Crop inputs
Farm implements
Agricultural vehicles
Livestock
Poultry
Fish farming
Group lending
Tobacco
h) Asset management
Mutual funds
Pension funds

Islamic Banking
Products and services included in HBLs Islamic banking are as follows:
a) Deposit accounts
HBL current account
Al-Mukhtar account
Al-Samarat account
HBL PLS account
HBL Basic Banking Account
b) Financing products
HBL diminishing Musharaka
HBL Murabaha
6

HBL Ijaraha

c) Trade and value added services

Letter of credit facility
Collection of foreign bills
Collection of local bills
Letter of guarantee
ATM/Debit Card facility
Utility bills collection
HBL internet banking
HBL phone Banking

Core and Non-Core Activities

Core activities of a bank are those activities on which mainly the banks
operations rely. These usually consist of those components of balance sheet
which are interest bearing components. For HBL five core activities are
identified on the asset side of the balance sheet which are listed as follow:

Advances or lending is the first major core activity that holds the major

proportion of the total assets.

Investments which include investment in government securities on

which the bank also yields interest,

Thirdly, cash and balances with treasury banks which are very crucial

in order to meet banks liquidity requirements

Lending to financial institutes or federal funds sold are overnight

lendings to other commercial banks,

Lastly, balances with other banks.

Whereas on the liability side core activities include:

Deposits and other accounts are the major source of funds for the

bank,
Borrowings are the second most important component,
Bills payable are a third core activity.

However non core activities include other operating fixed assets deferred tax
assets and miscellaneous assets of the bank and similarly, on account of
liabilities other liabilities and subordinated loans are non core activities for
HBL.

Analysis of balance sheet and Income Statement

TA= TL + TE
2010
Total Liabilities/Total Assets

89.91

2010: 797,527,672/887,052,411

2011: 962,399,058/1,063,853,648
ADR( Advances/Deposits)
2010: 416,261,389/875,308,597
2011: 434,998,560/721,069137
1st major source of fund (Deposits)
2010: 721,069,137/797,527,672
2011: 875,308,597/962,399,058
2nd major source of fund (Borrowings)
2010: 37,430,333/797,527,672

2011
90.5%

47.6% 60.3%

90.41

90.95

4.7%

3.5%

3.1%

3.6%

2011: 33,714,904/962,399,058
Significant changes in liabilities apart from major sources
(Other liabilities/TA)
2010: 24,971,618/797,527,672
2011: 34,983,770/962,399,058

1st major use of fund (Advances)

2010: 434,998,560/887,052,411
2011: 416,261,389/1,063,853,648
2nd major use of fund (Investments)
2010: 245,016,986/887,052,411

49.04

39.13

27.6% 37.6%

2011: 399,939,469/1,063,853,648
3rd major use of fund (cash and balances with treasury banks)
2010: 81,516,883/887,052,411

9.2%

9.7%

2011:103,080,076/1,063,853,648

Comments:
An increase in TL/TA ratio indicates that the bank has increased its debt
financing. An increase in debt financing leads to an increase in interest
expenses as well. HBLs interest expenses did increase due to this increase in
TL.
HBLs major sources of funds are deposits. It has a high dependency on
deposits i.e. 90%. It is an indication and a proof that HBL is a depository
institution.
HBL has decreased its borrowings and increased its deposits. This shows that
it is trying to change its portfolio mix. This change should lead to a decrease
in interest expenses but that did not happen. This might have happened
because the total liabilities of the bank have increased as well. The interest
expense to interest bearing liabilities ratio shows an increase which means
that there has been an overall rise in interest expenses and interest liabilities
as well. Deposits are interest bearing liabilities. There has been a significant
increase in deposits which has been a cause of the increase in interest
expense.

Apart from major sources of funds, there has been a change in other
liabilities of the bank which have increased from 3.1% to 3.6%. other
liabilities include interest payable in local currency, interest payable in
foreign currency, accrued expenses, unclaimed dividends, dividends payable,
taxes payable, branch adjustment, unrealized loss etc. all the mentioned
liabilities increased to a certain extent from 2010 to 2011.
HBL has decreased it advances and the investments have increased as far as
the uses of funds are concerned. The bank has changed its portfolio for
assets and has invested more in money market instruments in 2011 as
compared to 2012.
Cash and balances of the bank have also increased. It is a little risky to hold
cash instead of invest it or give it as advances but on the other hand, cash
plays a role of a cushion and absorbs losses.

Profitability and Efficiency Analysis

1. ROA= Net Income / Total Assets
a. 2010: 15,613,054/887,052,411 = 1.76%
b. 2011: 20,741,816/1,063,853,648 = 1.95%
ROA comments on the management efficiency of the bank and also
indicates that how capable the bank is to convert its assets into earning
assets. HBLs ROA increased by 0.19% in 2011 which shows that
management is efficiently managing its assets and converting them into
earning assets. The increase in 2011 ROA is mainly because the total assets
are more than the previous year and the main reason for increasing in the
total assets is due to increase in cash and balance with treasury bank and
increase in investments. HBL invest its main portion of investment in the
federal government security in market Treasury bill. They are relying on short
term securities investment. This proves that bank is converting its assets into
10

earning assets as the increase in the total asset is because of the increase in
earning assets. Cash and balances with treasury bank (current deposit) and
investments are the part of earning assets. The increase in net income after
tax is due to significant increase in the interest income and interest expense.
The increase in interest income is mainly due to the lending portion and
increase in the interest expense is mainly due to in deposits. Increase in ratio
increase the return.

2. ROE = Net Income / Total Equity

a. 2010: 15,613,054/89,524,739 = 17.4%
b. 2011: 20,741,816/101,454,590 = 20.4%
The ROE measure the rate of return to the bank's shareholders. The ROE is
showing the increasing trend which shows high return. In 2011 increase in
ROE ratio is 3% that means share holders of HBL got good returns in 2011.
Increase in shareholders' equity in 2011 is due to increase in the share
capital which is due to the shares which were issued to them as a bonus.
Hence it proves that it estimates the net benefits (which were the bonus
shares) that stockholders have received from investing their capital in the
HBL.

3. Net Int. Margin = Net Int. Income / Total Assets

a. 2010: 45,909,484/887,052,411 = 5.17%
b. 2011: 54884083/1,063,853,648 = 5.15%

11

This ratio shows that the bank was making optimal decision because the
interest earned was more than interest expensed. This is shown by the
positive value of the ratio. It shows that the management had the control
over the earning assets and used the cheapest sources of funding. On the
other hand, this ratio declines in 2011 which shows that the banks efficiency
for controlling its core activities declined by 0.02% in 2011. The bank should
decrease its interest expense to have an increased interest income. For high
interest income and net profit margin the bank should change its portfolio
mix.

4. Net Non Int. Margin = Net Non Int. Income / Total Assets
a. 2010: (12,872,577)/887,052,411 = (1.45%)
b. 2011: (15,546,917)/1,063,853,648 = (1.46%)
The negative figure of this ratio shows that the bank noninterest expenses
were greater than non interest income. The increase in noninterest expense
is mainly due to increase in administrative expenses. Although the
administrative expenses have increased in number but as a ratio of total
assets they have decreased which shows the bank is not in an expansionary
stage. The bank should control its non interest expense. It is also showing
that bank is not efficiently managing its non core activities. Increase in
administrative expense sows that the band has a poor control over the
expense as the bank is not at the expansionary phase.

5. Net Bank Operating Margin = Total Operating Revenues- Total

Operating Expenses
Total Assets
Whereas,
Total Operating Revenues=Interest income+ Non Interest Income

12

Total Operating Expenses= Interest expense+ Non-Interest expense

+PLL
EBT= Total Operating Revenues Total operating Expenses
a. 2010: 25,057,281/887,052,411=2.82%
b. 2011: 3,2031,561/1,063,853,648=3.01%
As this ratio is increasing, the bank is using its assets efficiently in day to day
activities and it can prove by this that due to banks core uses of funds the
total assets increase. This ratio also shows that the banks operating
expenses are lower than the revenues and operating revenues increased due
to interest income.
6. Earning Base= Earning Assets/Total Assets
Earning Assets Includes

2010

2011
1. Balance with other banks ( current deposits)

32,893,137

31,861,678
2. Lending to Financial Institutions

30,339,344

41,581,029
3. Investments

245,016,986

399,939,469
4. Advances

434,998,560

416,261,389
Total

743,248,027

889,643,565

a. 2010: 743,248,027/887,052,411=83.9%
b. 2011: 889,643,565/1,063,853,648=83.6%
As this ratio is declining this shows that the percentage of asset in the bank
asset portfolio is declining.
7. Asset Utilization= Total Operating Revenues/Total Assets
a. 2010: 91,049,356/887,052,411= 10.3%
13

b. 2011: 108,535,495/1,063,853,648=10.2%
The decrease in the value indicates that the company is not allocating the
bank's assets to highest yielding loans even it should review its portfolio
management policies.

8. Net Profit Margin=Net Income After tax/Total Operating Revenues

a. 2010: 15,613,054/91,049,356= 17.1%
b. 2011: 20,741,816/108,535,495=19.1%
The increasing ratio tells that the bank is doing well as far as managing its
expenses are concerned. It indicates that HBL can increase its earnings and
its returns to their stockholders by successfully controlling its expenses and
maximizing its revenues.

9. Equity Multiplier or Financial Leverage= Total Assets/Total Equity

a. 887,052,411/89,524,739=9.91%
b. 1,063,853,648/101,454,590=10.5%
It indicates the leverage or financing policies of a bank. It tells how many
dollars of assets must be supported by each dollar of equity capital as the
ratio is increasing so it shows that the bank has a great potential of high
return for its stockholders. It reflects managements decisions regarding
capital structure like type of sources of findings to be used and type of
dividends to be paid to stockholder. The increase in ratio indicates that
company is more exposed to failure risk but it also indicates that currently
bank has been able to generate higher returns for I stockholders. As this
ratio increases it increases the solvency risk as the bank rely on debt
financing.
10.

Yield on Earning Assets= Total Interest income/( T.Earning

Assets-T.Equity Investment)
14

a. 2010: 79,999,852/(743,248,027 10,018,800)=10.9%

b. 2011: 96,447,370/(889,643,565 11,020,680)=10.97%
There has been a slight increase in the yield of earning assets of HBL. It
shows that the bank has been able to earn more interest on its earning
assets. It is a ratio that identifies the banks efficiency in managing its asset
portfolio and investing in earning assets with higher returns.

11.

Cost of Borrowing on Interest bearing liabilities= T.Int Exp/T.Int

bearing liabilities
Interest bearing liabilities include:
2010
37,430,333

1. Borrowings
2. Deposits
875,308,597
3. Subordinated notes
Total

4,281,835

2011
33,714,904
721,069,137
4,497,285
762,781,305

913,520,786
a. 2010: 34,090,368/762,781,305 =4.5%
b. 2011: 41,563,287/913,520,786 =4.5%
This ratio has been stable throughout the year. It shows that the bank has
not made any efficient change in decreasing its costs of liabilities. The bank
might need to change its liabilities portfolio and have such liabilities on
which it has to pay lesser interest.

12.

Spread = Yield on earning assets Cost of barrowing on interest

bearing liabilities
a. 2010: 10.9% - 4.46%= 6.44%
b. 2011: 10.97% - 4.5%= 6.47%
Spread of HBL has increased from 2010 to 2011 by 0.03%. this is majorly
because it has increased its yield on earning assets because the cost of
borrowings on liabilities has been unchanged in both the years. It is a good

15

sign for the bank. It basically shows that in 2011, the bank has paid more
attention towards maintaining its assets rather than its liabilities.

Expense Control Measures and Analysis

1) Interest expense/total assets
a. 2010: 34,090,368/887,052,411 = 3.8
b. 2011: 41,563,287/1,063,853,648 = 3.9
An increase in this ratio is alarming for the bank. This shows that the bank is
unable to control its core expenses. HBL needs to manage its portfolio mix
more efficiently
2) Administrative expense/total assets
a. 2010: 23,053,860/887,052,411 = 2.6
b. 2011: 27,137,304/1,063,853,648 = 2.5
A decrease in administrative expense ratio shows that HBL is efficiently
managing its administrative expenses. Administrative expenses come under
the non-core activities of a bank and a reduction in this ratio shows that the
bank is able to manage its non-core expenses effectively. Although the
administrative expenses have increased in number but as a ratio of total
assets they have decreased which shows the bank is not in an expansionary
stage.
3) Non-interest expense/total assets
a. 2010: 23,922,081/887,052,411 = 2.7
b. 2011: 27,635,042/1,063,853,648 = 2.6
Non-interest expenses also show a banks non-core expense. A decrease in
this ratio is another efficient point for the bank. It shows that the bank is able
to manage its non-interest expenses such as salaries etc very efficiently. This
situation is favorable for the bank.
4) Total Interest Expense/Interest bearing liability
a. 2010: 34,090,368/762,781,305= 4.4%
b. 2011: 41,563,287/913,520,786= 4.5%
16

This ratio has increased by 0.1 in 2011 and is an indicator that the banks
interest expense as a ratio of its interest bearing liabilities have increased. It
should decline and the bank must be able to borrow from cheaper sources
where it can pay lesser interest so that its interest expense must decrease.

Credit Risk Analysis

1) NPL/Gross loans and leases
a. 2010: 46,677.077/31,787.870 = 146.8%
b. 2011: 51,313.510/34,871.192 = 147.1%
An increase in this ratio is alarming for the bank. This shows that the danger
of default by the borrowers to whom HBL has extended credit has increase
from 2010 to 2011. The actual amount of NPLs has also risen. Although the
gross loans increased in amount, the net loans did not due to an increase in
provisions.
2) PLL/Gross loans and leases
a. 2010: 7,559,458/31,787870 = 23.8%
b. 2011: 6,438,120/34,871,192 = 18.5%
A decrease in this ratio is quite favorable for HBL. It shows that in the future,
there will be fewer defaults by the borrowers to whom HBL has extended
credits.
3) All provisions/Total Assets
a. 2010: 7,979,626/887,052,411 = 0.89%
b. 2011: 7,305,605/1,063,853,648 = 0.18%
There has been a significant decrease in this ratio which also indicates that
in the future HBL will face lesser risk of defaults in the credits it issues to its
borrowers.

Liquidity Risk Analysis

17

1) Cash and balances with treasury banks/ Total Assets

a. 2010: 81,516,883/887,052,411 = 9.17%
b. 2011: 103,080,076/1,063,853,648 = 9.67%
An increase in this ratio indicates that out of total assets, HBL has increased
its bash and balances with treasury banks in 2011 as compared to 2010. It is
a favorable condition for HBL because now it has more cash to absorb losses.
On the other hand this cash could have been invested in something else or
had been given as advances.
2) Govt. Securities/Total Assets
a. 2010: 156,753,849/887,052,411 = 17.7%
b. 2011: 365,615,431/1,063,853,648 = 34.4%
An increase in this ratio shows that HBL has increased its investment in
government securities. It is a very favorable investment for the bank
because government securities provide stable and assured returns.
3) Net loans /Total Assets
a. 2011: 434,998,560/887,052,411 = 49%
b. 2011: 416,261,389/1,063,853,648 = 39.1%
A reduction in this ratio is alarming for the bank because it shows that the
amount of loans the bank is giving in 2011 has decreased as compared to
2010. Out of total assets the bank is giving out lesser loans. This can be due
to a decrease in giving out of loans or an increase in provisions.

Market Risk Measure Analysis

1) EPS
The Earnings per share is a company's net income expressed on a per
share basis. Net income for a particular company can be found on its
income statement. It is important to note that the earnings per share
formula only references common stock and any preferred stock
dividends is subtracted from the net income, if applicable.

18

EPS= Net Income / No. of share

outstanding
Year

Net Income

2011
2010

No.

20,741,816,000
15,613,054,000

of

shares EPS= net income/

outstanding

no.

shares

1,102,068,000
1,102,068,000

outstanding
18.82
14.17

Earnings per share of the HBL have increased from Rs 14.17 to

Rs18.82. This is a good sign for the bank because they are paying their
shareholders more than the previous year. The value of stock has
increased with an increase of EPS. The reason for an increase in EPS is
that the net income has increased comparing with the previous year
net income while number of shares outstanding remained same for
both years.

Solvency and Capital Adequacy

1) T. Equity capital/ Total Assets
a. 2010: 89,524,739/887,052,411=10.1%
b. 2011: 101,454,590/1,063,853,648=9.5%
As the ratio is declining it shows that the equity funding is declining relative
to total assets it indicates that the increased risk exposure for the banks
shareholders and debtholders.
2) CAR
a. 13.72%
b. 15.15%
As the ratio is increasing it indicates the stability and efficiency of the bank
CAR also represents the protection of depositors that means HBL is able to
give more protection to its depositors.
19

3) MCR :
a. Minimum capital requirement set by the BPB in 2010 was PKR
10b. The share capital of HBL was PKR 10,018,800,000 and total
equity was PKR 89,524,739,000. The bank was fulfilling the
requirements of SBP efficiently.
b. Minimum capital requirement set by the SBP in 2011 was PKR
15b. the share capital of HBL was PKR 11,020,680,000 and total
equity was PKR 101,454,590,000. If we look at the share capital
then the bank did lack behind but is total equity is taken into
account, the bank is fulfilling the requirements even by adding
up the reserves into its share capital.

Dupont Analysis
ROE= NPM*AU*EM
NPM= NET INCOME AFTER TAX / t. OPERATING REVENUES
AU= T. OPERATING REVENUES / TA
EM= TA / TOTAL EQUITY
2011: (20741816/10835495)*(108534594/1063853684)*(1063853648) = 20.4%
2010: (15613054/91049356)*(91049356/887052411)*(887525739/89524739) =
17.4%

ROE=ROA*EQUITY MULTIPLIER
2011: 1.95* 10.5 = 20.4%
2010: 1.76*9.91 = 17.4%
Dupont comments on the shareholders' returns affected by the management. An
increase in financial leverage indicates that shareholders' returns have increased in
2011. It also indicates the capital structure of a bank. As the equity multiplier, TA,
and ROA have increased, so has the ROE.

20

21

Conclusion:
HBL bank rank under the top five bank of the Pakistan. The overall analysis
shows that HBL is performing well and enjoying good profits. Its major source
of funds are deposits and its major use of funds are advances but during
2011 the bank has invested more in short term securities that mean that the
bank is focusing on the immediate cash requirements. The bank has
excessive amount of cash on hand that show the bank is not using the cash
efficiently. The interest expense is also increasing due to increase in
liabilities. The bank tried to change its portfolio mix to control the interest
expense but it failed. The bank is maintaining it assets efficiently but not its
liabilities.

22

Recommendation
The company should control its non-interest expenses as compared to its net
non interest income.. The administrative expenses of the company are
increasing which is the reason of total increase in noninterest expenses.
The companys asset to liability ratio is increasing, which means that the
company is financing its operations through debt financing. This again needs
some attentions, as very high debt financing mean high rate of interests on
the loans and this can be very expensive sometimes.
The company has a lot of cash on hand. This idol cash right now is useless
for the company. This cash on hand can be invested into some short term
investments and the company could earn profits on this idol cash.
The company has recently decreased its advances. This has decreased the
earnings for the company and as the financial report shows, the company
has a lot of idol cash. This cash can be used to increase the advances given
to customers and in this way the company can increase its earnings.

23