Pakistan equities post mixed results year-over-year.

• Position: Financial report

Byline: Shabbir Kazmi

HABIB BANK LIMITED (HBL) has posted earnings of Rs1.7/share, down by 63%YoY. Despite Rs3.2 billion reversal in Workers Welfare Fund (WWF)expense, earnings were below market expectations as the Bank booked hefty loss from dealing in foreign currencies as well as higher total provision charge. Despite increase in interest rate, net interest income of the Bank dropped by 3%YoY. This can be attributed to maturing high yielding PIBs as well as lag in re-pricing of assets compared to liabilities. HBL booked total provision reversal of Rs3.3 billion attributable to both worsening of equity market as well as decline in asset quality. HBL also recorded Rs1.8 billion loss from dealing in foreign currency mainly due to its outstanding foreign currency loan. HBL had taken a foreign currency loan in order to pay-off penalty imposed by New York State Department of Financial Services (NYDFS) in 2017.

Administration expenses remained elevated with 14%YoY growth primarily due to expenses related to its international operations. During 2018, the Bank reported a 54% increase in profits mainly due to low base in 2017 as a result of Rs23.7 billion penalty charge during 2017. Normalizing for this penalty, earnings are down 61%YoY due to 25%YoY higher admin expenses, 40% lower non-interest income and 2% decline in net interest income. Key risks for the stock include: 1) delay in expected hike in interest rates, 2) lower than expected growth in advances, 3) deterioration of Pakistan macros and 4) further penalties on international operations.

UNITED BANK has reported earnings of Rs4.7/share for 4Q2018, down 16%YoY primarily due to a hefty provisioning charge during the quarter. However, the earnings are much higher than market expectations due to reversal in pension charge as well as reversal in Workers Welfare Fund (WWF) expense. UBL announced a dividend of Rs3/share for 4Q2018. Net Interest Income (NII) remained flat in both this quarter and in 2018 despite 425bps hike in policy rate during 2018. This could likely be due to both high proportion of fixed rate PIBsin UBLs book. The bank booked a provision charge of Rs5.6 billion in the quarter, primarily due to provisioning for NPLs in its international operations in order to increase its coverage ratio.

The total provision charge for 2018 was reported at Rs13.1 billion. The Bank's earnings were supported by reversal of Rs2.1 billion in pension charge. UBL had booked pension charge of Rs8.7...