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MCB Bank Limited (MCB) did exceptionally well to steer through what was a tough twelve months ending December 2019. Given the challenges facing the economy in terms of growth, pressures faced by the large-scale manufacturing, significant drop in consumer demand – MCB did well enough to post a sizeable 25 percent year-on-year profit growth for CY19.

To top it off, the bank continued with its rich history of high payouts – doling out another Rs5/share as the final dividend – taking the full year dividends to Rs17/share – easily the highest payout ratio among peers. Understandably, last year was not one for expanding the balance sheets massively, given the overall slowdown the economy faced. It was surely one for optimizing the balance sheet, and holding on to the opportunity that presented itself, in terms of the interest rate scenario.

There was not a significant change in the balance sheet size or composition. The interest rates remained high and largely unchanged for the large part of the year – necessitating no big change in balance sheet strategies across the industry. On the asset front, investments continued to constitute the bulk of asset mix, with an IDR in excess of 65 percent. The investment portfolio closed in at Rs749 billion, almost identical to December end 2018.

Within the investments, the focus seems to have shifted from the shorter-tenor government papers towards longer term investments gradually, which is understandable, given the interest rate scenario. The advances on the other hand, registered a slight decline of 1 percent over December 2018, clocking in at Rs497 billion – with an ADR of 43 percent, down from 48 percent in the year ago period.

MCB Bank Limited
Rs (mn) CY19 CY18 chg
Markup Earned 138,292 83,319 66%
Markup Expensed 78,676 37,305 111%
Net Markup Income 59,616 46,014 30%
Non Mark-up / Interest Income 16,679 17,198 -3%
Total income 76,295 63,212 21%
Non Mark-up / Interest Expenses 33,709 32,902 2%
Provisioning/(Reversal) 2,484 -1,753
Profit Before Taxation 40,102 32,064 25%
Taxation 16,125 10,704 51%
Profit After Taxation 23,977 21,360 12%
EPS (Rs) 20.23 18.02
Source: PSX

The bank’s net markup income soared by 30 percent year-on-year, which MCB attributes to effective asset deployment of low-cost deposits. It must be recalled that MCB boasts of one of the best CASA ratio in the industry at over 90 percent, which has time and again given MCB the edge over peers in testing times.

The mark-up income impressive growth was built on both advances and investments. Mark-up income on advances increased by Rs20 billion over previous year, as the earning yield on advances soared by nearly 400 bps year-on-year. The increased average volume of investments coupled with 391 basis points higher yield over previous year, led to an increase of Rs31 billion, from mark-up income on investment.

The contribution from non-markup income was healthy, although slightly lower than last year. Fee commission and foreign exchange income combined to keep the non-funded income going – as the returns on equity were lower on account of middling stock market performance during the year. MCB did an exceptional job at keeping a lid on the administrative expenses, despite high inflation

The NPLs recorded a marginal increase, which is a healthy sign in times of economic distress and high interest rates. The infection and coverage ratio both stood comfortably at 9 percent and 88 percent, respectively.