MCB, UBL: Big banks rake in big bucks

In an economy, where a large portion of the population is un-banked, small savers face dearth of investment opportunities and the government relies on the banking sector to plug its deficit. Consequently, the fate of the banking industry (mainly large players) is marked by fat margins. The above mentioned theorem can be attested from the fact that two giant banks- MCB Bank and United Bank Ltd- each revealed a double-digit profitability growth during 9MCY11, on Tuesday. Last week, the other two giant banks, HBL and ABL also saw net profit rise by 28 percent and 32 percent, respectively. Although, MCB and UBL have remained cautious in lending to the private sector, a combination of higher KIBOR levels and expansion in investment base supported the top-line growth. The deposit base of MCB and UBL rose by 12 percent and 1 percent, respectively, during the first nine months of CY11 to Rs483 billion and Rs557 billion, respectively, at the end of September, 2011, while the industrys deposit base grew by around 5.8 percent. In consideration of 45 percent expansion in the investment base during the first nine months of CY11 to Rs309 billion at the end of last month;,MCBs IDR (Investment to deposit ratio) increased to 64 percent..During the same period, UBLs investment portfolio increased by 19 percent to Rs267 billion, lifting its IDR to 48 percent. The gross spread ratio of MCB and UBL stood at 66 percent and 56 percent, respectively, in 9MCY11. Moreover, investment banking activities also remained a similar success story for both banking giants. Due to higher inflationary pressures, investment in technology up-gradation, human capacity building and branch network expansion; the banks saw year-on-year growth in non mark-up expenses during 9MCY11. MCB was the most cost efficient, with operating revenues to expense (non mark-up) ratio of 3.22, as opposed to 2.52 for UBL, 2.27 for ABL and 2.39 for HBL during 9MCY11. Banking industrys greater interest in treasury securities is not a nine-day wonder. In the midst of weak business outlook and given that the government is not ready to wind down its borrowing from financial intermediaries; investment in sovereign instruments will continue to serve as a money-spinner for the banking industry down the road.

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                              United Bank Ltd                         MCB Bank
(Rs mn)                     9MCY11      9MCY10   chg    9MCY11    9MCY10   chg
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Markup Earned              52,532      43,238    21%   49,614    40,241    23%
Markup Expensed           (22,899)    (18,025)   27%  (16,691)  (13,260)   26%
Net Markup Income          29,633      25,212    18%   32,923    26,981    22%
Provisioning               (6,510)     (6,250)    4%   (2,729)   (2,064)   32%
Net Markup income
 after provisions          23,123      18,962    22%   30,194    24,917    21%
Other  income               8,937       7,294    23%    6,077     4,591    32%
Operating revenues         38,570      32,506    19%   39,000    31,572    24%
Other expenses            (15,308)    (13,331)   15%  (12,105)  (10,145)   19%
Profit before taxation     16,752      12,925    30%   24,165    19,363    25%
Profit after taxation      10,952       8,060    36%   15,515    12,497    24%
EPS (Rs0                     8.95        6.58           18.55     14.94
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Source: Companies accounts