There was always going to come a time for big banks to taste some modesty – and 4QCY24 is proving to be that for many. MCB Bank Limited (MCB), announced its CY24 financial results – showing a 5 percent year-on-year dip in pretax profits, bringing an end to a record-breaking spree that went on from one quarter to another for much of the last two years. The profits are still very healthy of course, and there was some jubilation for the shareholders with another final dividend of Rs9/share – taking the full-year payout to Rs36/share.
In the race to avoid higher penal tax in case of low ADRs, the balance sheet transformation during 4QCY24 is one for the ages. Consider that advances grew a mammoth 80 percent over December 2023, crossing Rs1 trillion in the process, for the first time in MCB’s history – taking the ADR from as low as 32 percent by the end of 2023 to 54 percent by the end of 2024. There was an unprecedented 54 percent surge in advances alone over the previous quarter – which is the sharpest such jump ever recorded in a span of a quarter.
The sharp rise in advances meant the asset composition was tilted appreciably, although it remains investment-heavy. The investment portfolio shrunk by over Rs340 billion or 23 percent in 4QCY24 over the previous quarter, with the IDR down to a little over 60 percent – the lowest in a long time. On the liabilities front, MCB shed more than Rs140 billion in deposits during 4QCY24 over the previous quarter, and the deposit growth over December 2023 was contained at 6 percent – lower than the industry average. That said, current deposits constitute nearly half the deposit base and the CASA ratio at 97.2 percent remains the best in the business, by some distance.
The rather sharp decline in interest rates meant the spreads were under pressure, especially on the saving deposits which yielded negative spreads – keeping the net interest income growth in check. Non-markup income showed a sizeable double-digit growth led by fee, commission income, foreign exchange income, and an appreciable increase in gain on the sale of securities. Administrative expenses grew sharply, beating the average rate of inflation for the period, putting pressure on the cost-to-income ratio, which stood near 33 percent.
While the infection and coverage ratio at 4.9 and 99 percent respectively, remain at comfortable levels, a rather sudden jump in advances portfolio may lead to some increase in the size of NPLs going forward. With the interest rates expected to slide further before bottoming out for the time being, the shift in asset composition is likely to stay for another quarter, even though the threat of penal ADR tax goes away.
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