Lower provisioning for bad debts and higher reversal in pension funds mitigated the decline in MCBs first quarter core earnings.
Sluggish growth in advances and downward trajectory in benchmark interest rate kept the banks mark up earnings flat during the quarter.
Although, the banks deposit mix tilted towards cheaper demand liabilities during 2009, its interest expense grew in line with the deposit growth in the quarter ending March, where core income fell 4 percent year-on-year on gross basis.
Quite remarkably, MCBs provisioning for bad debts was almost halved during the first quarter compared with that of the industry.
There are two plausible reasons for this performance; a reversal in the accrual of FSV benefit, or a partial recovery of bad debts.
Had it not been the extraordinary gain of Rs432 million on foreign exchange earnings last year, MCBs non-core income would have increased by 12 percent. But the latest results depict a 16 percent decline, year-on-year, in fee commission and other income.
Mind you, MCB is traditionally known for its corporate portfolio with less attention to consumer and non-core banking activities. The peers, especially UBL, with much more presence in consumer segment and other activities are likely to outperform MCB in the downward cycle of interest rates.
MCBs pension fund reversals, which were around Rs700 million during 1QCY09, are likely to have been much higher during Jan-Mar 10, which helped contain the banks administrative and other expenses.
Thus, lower provisions and some reversals in pension funds were instrumental for MCB to keep its bottom line stay afloat.
However, the bank still has to work aggressively on core banking business. Exploring high yielding advances both in retail and consumer banking and refocusing on innovative products to attain momentum in its other income account seem to be the right steps in the right direction.
MCBs average ROE declined by 415 bps to 27.4 percent during 2009, and, if the lenders management doesn shift gears soon, the bank will keep losing in the race to achieve high return on equity.
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MCB Bank - P&L
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Rs (mn) 1Q2010 1Q2009 Growth
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Mark-up earned 13,101 12,983 1%
Mark-up expensed (4,377) (3,886) 13%
Net mark-up Income 8,724 9,097 -4%
Provisioning (1,002) (1,746) -43%
Net mark-up income after provisions 7,722 7,351 5%
Non-markup income 1,400 1,675 -16%
Operating revenues 10,124 10,772 -6%
Non-markup expenses (2,871) (2,788) 3%
Profit after taxation 4,141 4,135 0%
EPS (Rs) 5.45 5.44
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Source: Company Announcement
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