Pakistans premier commercial bank, MCB kick started the annual results season for banks, as the countrys fourth largest bank said its after-tax earnings improved by 10 percent year-on-year in 2012. The banking sectors current state reflects well and truly in the MCB 2012 financial statements, as despite a flat top-line and declining spreads, the bottom line growth stayed in double digits.
Despite a 17 percent year-on-year growth in the asset base, the top line growth largely remained in check, primarily owing to the prevailing low interest rate scenario. The investments in government securities increased by a whopping 27 percent over previous year, whereas advances only grew by 5.4 percent during the period. The deposit growth during the period was a steady 11 percent. Parking deposits in the government papers have of late been the phenomena in the industry, and MCB Bank did not shy from this strategy.
Resultantly, the ADR fell further to 44 percent as at December end 2012, while the IDR rocketed to 74 percent, up from 65 percent as at December end 2011. Whether there is a genuine lack of appetite for credit in the private sector or it is the reluctance of banks to lend in the current situation is anyones guess. But the soaring investments surely indicate that MCB was quite content in earning the less risky way.
The gross spreads ratio for the period declined to nearly 60 percent, from 65 percent in CY11. The SBP requirement of increased return on fixed deposits also played its part in shrinking the spreads, in a time when the interest rates kept falling.
Decline in provisioning charges was a just outcome, as a larger chunk of the asset side was lent to the risk free borrower. That plus the aggressive provision in yesteryears played its part in aiding the mark-up income after provisioning. The non-markup income also soared impressively by 16 percent year-on-year as increased emphasis on brokerage and commission services reaped sound results.
MCB seems to have put in tremendous effort in managing its administrative expenses, which remained stagnant during the period. Going forward, a lot will depend on the interest rate scenario which will decide whether there is a change in banks strategy of lending to the private sector.
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MCB BANK LIMITED
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(Rs mn) CY12 CY11 chg
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Mark-up Earned 68,444 68,216 0.3%
Mark-up Expensed (27,503) (23,633) 16.4%
Net Markup Income 40,940 44,583 -8.2%
Provisioning (478) (3,654) -86.9%
Net Mark-up income 40,462 40,930 -1.1%
after provisions Other income 9,541 8,241 15.8%
Operating revenues 50,481 52,825 -4.4%
Other expenses (17,823) (17,778) 0.3%
Profit before taxation 32,476 31,322 3.7%
Profit after taxation 21,235 19,302 10.0%
EPS (Rs) 23.00 20.95
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Source: Company Accounts
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