The country’s fourth largest commercial bank in terms of asset size, MCB Bank announced its 9MCY12 financial results on Wednesday, showing modest growth. The bottom line grew by 7.5 percent year-on-year, largely owing to a massive decline in provisioning charges during the period.
MCB’s top line witnessed a modest increase of 4.6 percent year-on-year, despite a 17 percent wider asset base. The prevailing low interest rates kept top-line growth in check.
Moreover, the minimum requirement of six percent return on saving deposits further trimmed the net interest income which declined by five percent year-on-year.
Banks’ spreads have been declining of late and MCB’s 9MCY12 results are a testament to that, as the gross spread ratio deteriorated to 60.2 percent for the period, down from 66.4 percent in the same period last year.
The asset growth single-handedly owes to a massive increase in investments, which soared by 31 percent from December 2011. Parking deposits in the government papers has of late been the phenomena in the industry, and MCB Bank did not shy from this strategy.
Advances on the other hand, increased by a mere one percent from December 2011, reflecting either the lack of appetite from the private sector, the Bank’s reluctance to lend to risky borrowers, or both.
MCB’s IDR as a result jumped to an extremely high level of 77 percent, up from 64 percent as on December 31, 2011. Unsurprisingly, the ADR continues to decline, standing at 42 percent as on September 30, 2012, down from 46 percent as on December 31, 2011.
Decline in provisioning charges, therefore, was a just outcome, which aided the bottom line growth.
MCB seems to have put in tremendous effort in managing its administrative expenses, which grew way less than the average inflation during the period. A steady stream of other income boosted the profit after tax, as commissions and dividend income contributed significantly to this account.
Since interest rates have declined further following the latest monetary policy announcement by SBP, analysts believe that banks might re-think their strategy and start lending to the private sector instead of piling on investments.
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MCB BANK LIMITED
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(Rs mn) 93CY12 9MCY11 chg
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Mark-up Earned 51,903 49,613 5%
Mark-up Expensed (20,662) (16,691) 24%
Net Markup Income 31,241 32,922 -5%
Provisioning (54) (2,734) -98%
Net Mark-up income 31,186 30,189 3%
after provisions
Other income 6,935 6,077 14%
Operating revenues 38,176 38,999 -2%
Other expenses (12,663) (12,101) 5%
Profit before taxation 25,459 24,165 5%
Profit after taxation 16,673 15,515 7%
EPS (Rs) 18.13 16.87
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Source: Company Accounts