Cost cutting helps MCB

Cost cutting helped MCB Bank keep its bottom line growth in green for 1QCY13. The bank announced its 1QCY13 financial results showing a modest 3.7 percent year-on-year growth in profits.
The profit growth is the highest amongst the big five - as three of the other leading banks have recorded decline in profits during the period.
The top line story went as expected; low interest rates and no major activity in private lending restricted mark-up income. A significant portion of deposits was parked in government papers, which grew by nearly 23 percent year-on-year, with negligible growth in advances.
The NII as a result dipped as the SBP raised the requirement of minimum return on fixed deposits, squeezing the gross spread ratio from 61 percent last year to 58 percent for 1QCY13.
What really mattered was MCBs effort to cut down its operating expenses. The bank remained the only one amongst the top five, to have recorded a dip in year-on-year operating expenses, where all other banks saw a sizeable jump.
This is perhaps the only way banks can make up for the low interest rate scenario and their safety approach lending approach.
MCBs CASA ratio stands at a very healthy 84 percent, much higher than the peers. This is where it can shield itself to a large extent from the SBPs revised requirement of minimum return on average month deposits. That said, something has to give, either the rates go up or the banks start lending to the private sector - without which solely depending on cost cutting wouldn be a long-term option.

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MCB BANK LIMITED

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Rs (mn)                               1QCY13    1QCY12      chg

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Mark-up Earned                        16,740    17,561    -4.7%

Mark-up Expensed                     (6,996)   (6,846)     2.2%

Net Markup Income                      9,744    10,714    -9.1%

Provisioning                             840      (75)   -1217%

Net Mark-up income after provisions   10,585    10,639    -0.5%

Other  income                          2,417     2,509    -3.7%

Operating revenues                    12,161    13,223    -8.0%

Other  expenses                      (4,318)   (4,575)    -5.6%

Profit before taxation                 8,868     8,703     1.9%

Profit after taxation                  5,903     5,694     3.7%

EPS (Rs)                                5.82      5.61

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Source: Company Accounts