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MCB Bank Limited (MCB) continued its rich dividend payout legacy announcing another interim dividend of Rs9/share, in addition to Rs9/share announced in 1QCY24. The bank posted another quarter of stellar profit growth, with the half-yearly profit after tax growing an impressive 20 percent year-on-year to a record Rs31.9 billion. The Bank posted the highest-ever half-yearly profit at a time when its advances to deposit ratio at barely 31 percent was at a low for a very long time. The jury is out if the profit growth is despite or because of the low ADRs, but the investors are surely not complaining.

This is how the asset composition looks like at the end of 1HCY24. Investments at Rs1.48 trillion grew nearly 19 percent over December 2023 – and the investment to deposit ratio shot up to 74 percent – highest in recent years. On the flipside, gross advances at Rs614 billion are a 6 percent improvement over December 2023 – and the ADR has slipped further to the lows of 31 percent. The asset composition needs no explanation for anyone who has been following the banking sector lately. The government’s borrowing appetite is never satiated, and the private sector borrowing has been curtailed owing to high interest rates, and multitude of other macro headwinds.

On the liabilities front, deposit base firmed up to Rs1.99 trillion– up 10 percent from December 2023. MCB has stood out among peers in terms of deposit mix with a CASA ration consistently in the 90s. The current deposit growth was an impressive 13 percent or Rs110 billion year-on-year, as MCB continued to bank on its favorable deposit mix. Domestic cost of deposits at 10.76 percent inched up by 2.8 percentage points – despite a substantial increase in average policy rate from last year.

The NPLs increased a little from last year to Rs57 billion, but the infection ratio stayed well within single digits at 8.6 percent, with adequate provisioning taking the coverage ratio to 89 percent.MCB’s administrative expenses went up 18 percent year-on-year, amid high inflationary scenario and continued investments in technology. The non-markup income continued to grow from strength to strength, registering an impressive 30 percent year-on-year growth, mainly on the back of fee commission, foreign exchange, and dividend incomes – all growing well into double digits from last year. The cost to income ratio stayed close to 30.5 percent, less than one percentage point higher than the same period last year.

The monetary cycle reversal has started, but there are indications that the reversal will be cautious. The demand destruction may take longer to recover, given inflationary pressures persisting, and the loss of real wages as a result of taxation measures imposed through the budget. Credit demand growth is likely to remain checked in the coming quarter or two, but that has not stopped MCB and peers from raking in record profit earlier. Should not be different going forward either.

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