MCB – no stopping the dividends

MCB Bank does not mind paying rich dividends. It announced another Rs4/share as first interim dividend yesterday, continuing with its rich high payout history. Even with the magnified impact of Super Tax imposition with retrospect, the after-tax earnings grew year-on-year. The balance sheet growth was not exemplary, but the consolidation is there to be seen – and the rise in interest rates over the year, meant top line was considerably higher.

That said, the spreads are rather squeezed and the gross spread ratio went down. The increase in mark-up expensed during the quarter at 94 percent year-on-year arrested some growth. MCB’s deposit book has crossed the trillion rupee mark, and the bank boasts of one of the highest CASA ratio in the industry at over 90 percent.

The average yield on earning assets has increased considerably from the same period last year. The asset mix is now heavily tilted towards advances, which is an industry wide phenomenon. Most big banks now have an advances portfolio bigger than the investment size – which should not ideally be news. The interest rate dynamics have dictated the sift, and with investments, the move from long term to short term sovereign papers is also there for everyone to see.

The drop in investments has been rather brisk – as the bank’s investment portfolio thinned by nearly 40 percent over December 2018. Advances remained static – whereas the deposit grew marginally by over 1 percent – against a 2 percent drop across the industry. Lending to financial institutions picked up during the quarter, making 19 percent of deposits, up from just 3 percent as at December end 2018.

The non-funded income slid slightly, mainly on account of drop in gain on sale of securities. The bank did exceptionally well to keep a lid on operating expenses, despite inflationary pressures. The bank has managed the bad loans rather well – and the NPLs were kept well in check – and adequately provided for with a high coverage ratio. The recovery efforts were in full swing, letting MCB record a reversal in provisioning charges during the quarter.

MCB has shown growth in customer base in times when the economy has slowed down and the industry is facing a drop in deposit growth. Most soundness indicators place the bank well poised to pounce on any opportunity that may arise, sooner or later. In the near future, advances and deposit growth may remain subdued, and non-core income may well be again at the core of driving the bottom-line growth.