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The banking sector profitability galore continued as MCB Bank Limited (MCB) announced 9MCY23 financial results – registering an astounding 122 percent year-on-year increase in after-tax profits. The record profit was accompanied by an interim cash dividend of Rs8/share, taking the year-to-date payout to Rs21/share – in continuation of MCB’s history of paying rich dividends.

The blueprint to record profit growth was familiar. MCB boasts of one of the highest CASA ratio in the industry – and has continued to show an improved deposit mix quarter after quarter. This comes in handy, especially in a rapidly rising interest rate environment. Then the increased deposits is almost entirely parked in sovereign high-yield government papers. And that almost always means, the advances to private sector going down. Improved gross spreads, as cost of deposit is controlled owing to substantial addition in low to no-cost deposits – healthy return on government papers, and steady growth in cross-selling – all add up to mouthwatering profits.

The average domestic current deposits grew an incredible 30 percent year-on-year, adding Rs190 billion to the overall deposits. The average current to total deposit ratio reached 51.5 percent during the period – up by over 10 percentage points in the same period last year. This effectively means the bank pays no returns on more than half of its deposit base. Consider that the average cost of deposits for MCB was only 8.6 percent during the period – an increase of only 260 basis points from last year. This, considering that the massive rise in overall interest rates during the period tells how MCB’s exceptionally contained cost of deposits, is driving the profitability growth.

On the asset side, fast-deteriorating macroeconomic indicators led to asset repositioning – with MCB increasing the exposure in government treasury bills and PIBs. Net investments grew 29 percent over December 2022 – taking the Investment-Deposit ration to as high as 73 percent. On the advances front, there was a 20 percent dip over December 2022 – as advances fell by Rs152 billion. The ADR, as a result, went to as low as 35 percent. This is down by more than 19 percentage points from the ADR in excess of 54 percent as at December end 2022.

On the cost front, administrative expenses were curtailed well within the overall general inflationary trend – improving the cost-to-income ratio to a very impressive 29 percent – an improvement of 8 percentage points from the same period last year. The asset quality was well maintained and adequately provided for – with an infection ratio of 8.4 percent, with a coverage of 83 percent.

Little wonder that banks, especially the bigger ones, do not really mind super taxes – given how the government’s misery helps them rake record profits. There is nothing suggesting a marked deviation from the recent trend in the foreseeable future. No one is complaining.

Comments

200 characters
Ahmed Khan Oct 30, 2023 08:20pm
They depreciate currency and the scholars tell people that interest is Riba so half the population avoids it. That's how banks earn money. Smart people buy gold to protect their wealth. The only issue is making sure no one robs you of Gold.
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Ghulam Mustafa Oct 30, 2023 11:51pm
50000
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Aamir Memon Oct 31, 2023 02:44am
Mcb is best bank pakistan
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