MCB profits up; confidence low

Doling out a 30 percent dividend was not enough of a positive stimulant for investors. MCB announced its half yearly results late in yesterdays trading at the local bourse.
The benchmark KSE 100 index fell 38 points amidst a result that was marginally lower than expectations. MCB fell 1.4 percent in trading at KSE yesterday.
For the first six months of the year, the bank posted earnings of Rs10.45 per share whereas market participants expected earnings in the range of Rs10.7~10.9.
Credit managers at the bank maintained the topline as net mark-up increased by about 4 percent after its advances marginally declined in the last year amid a fall in lending rates while its deposit mix tilted slightly towards expensive time liabilities Being a late entrant in the consumer banking segment, the surge is most likely attributable to booking of capital gains in the stock market. Analysts following the industry confirmed that the bank had accrued capital gains that it might have booked in the run up to the results.
Famous in banking circles for notoriously clamping down on operating expenses, the bank saw an increase of nearly 25 percent under that head. In comparison, its competitors have managed to keep operating expenses in line with inflation in the current year.
Increase in administrative expenses is most likely caused by reductions in pension fund income in the last quarter. MCB amortizes the charges on that account in a relatively shorter time frame, causing a greater impact compared to its competitors.
As expected provisioning in the first half of the year declined by nearly 50 percent over the corresponding period last year. But before the managers can breathe easy, its worth noting that NPLs for the bank have increased by 4 percent in the last three months after virtually remaining flat in the first quarter of the calendar year.
And the advance-to-deposit ratio for the bank has also declined from 68 percent at the end of 2009 to 58 percent at the end of June. Its not as if deposits have not increased in the same time, but MCB has been unable to convert deposits into advances.
The deposits for the bank increased by 14 percent during the first six months of 2010, while advances on net basis were down by 3 percent. MCB, whose deposit mix is already more tilted towards low cost demand liabilities versus its peers has marginally enhanced expensive time liabilities ratio to total deposits to exhibit healthy growth,
The decline in advances amid growth in toxic assets worsened the infection ratio by 85 bps to nearly 7 percent in the last six months.
Downside pressures on the stock price can be expected for the bank in the next few trading sessions but the bank is expected to attract investor attention.

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MCB P/L

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Rs (mn)                    Q2CY10   Q2CY09 % chg   1HCY10   1HCY09   % chg

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Mark-up  earned           13,295   12,847     3%  26,396   25,850       2%

Mark-up  expensed         (4,322)  (3,857)   12%  (8,699)  (7,769)     12%

Net mark-up Income        17,617   16,704     5%  35,095   33,619       4%

Provisioning              (1,052)  (2,255)  -53%  (2,054)  (4,000)    -49%

Net mark-up income

 after provision          18,669   18,959    -2%  37,150   37,619      -1%

Non-markup  income         1,591    1,070    49%   2,991    2,758       8%

Operating Expenses        (3,551)  (2,354)   51%  (6,421)  (5,153)     25%

Profit before taxation     5,961    5,451     9%  12,212   11,689       4%

Profit after taxation      3,801    3,622     5%   7,942    7,756       2%

EPS                            5     4.76          10.45     10.2

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Source: Company Results