MCB Bank does well again!

In such times of thinning spreads, double-digit growth from top to bottom is no mean achievement. Prudence plays a vital role in tough conditions and MCB has been pretty good at that. Sure, the PIB and Treasury bill euphoria has played its part, but credit must be given to MCB for keeping a clean(ish) book throughout the year.
The strong performance at the top stemmed from the PIB bonanza, MCB has invested heavily in government securities, mostly in PIBs - a reversal from the earlier trends of higher investments in treasury bills. It makes all the common sense too. PIBs are offering more than decent returns. Any bank would not want to miss the opportunity, of securing risk free return on sovereign papers.
MCBs advances too have grown in CY14, in fact at a much faster pace than growth in investments. But the earlier tilt towards investments means the ADR is still in the early 40s, far from where a commercial bank of its size should ideally be. Then again, banks would tell a host of reasons for not lending enough to the private sector, from lack of demand to high risk, and from loopholes in bankruptcy laws to non- conducive environment. They just would not tell they are happy lending to a risk free borrower who is willing to pay decent returns and that complacency may have set in, in the bid to boost profits.
Whatever the reasons, the NII has continued to strengthen despite shrinking gross spreads. MCBs deposit mix is a healthy one with a CASA ratio of almost 90 percent.
MCBs aggressive provision in yesteryears is also bearing the fruits. Provisioning reversals continue to boost the NIMs. The bank has made rigorous efforts towards recovery and the refined risk management strategy adopted has played its part in keeping NPLs in check. The infection and coverage ratio are both at healthy levels and moving in the right direction.
The current year may not be as easy as CY14 was, as interest rates have come down, SBP is apparently looking to be stricter in terms of imposing higher return on deposits and limiting gross spreads, commodity prices are declining and government papers may not yield as attractive returns as they did.
All this should lead banks to come out of the slumber and start lending more aggressively. A return to consumer lending is an area many feel is the way to go. Lets see if MCB is thinking that way. Complacency won bear fruits in 2015.

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MCB Bank Limited (Consolidated P&L)

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Rs (mn)                                   CY14      CY13      chg

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Markup Earned                           77,411    65,186      19%

Markup Expensed                         33,770    27,219      24%

Net Markup Income                       43,641    37,967      15%

Provisioning/ (Reversal)               (1,450)   (2,836)     -49%

Net Markup Income after provisions      45,091    40,803      11%

Non Mark-up / Interest Income           13,752    11,477      20%

Operating Revenues                      58,843    52,279      13%

Non Mark-up / Interest Expenses         22,071    19,976      10%

Profit Before Taxation                  37,354    32,932      13%

Taxation                                12,580    10,982      15%

Profit After Taxation                   24,774    21,950      13%

EPS (Rs)                                 22.15    19.65

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