In times of thin spreads, prudence plays a key role. MCB does exactly that, and quite efficiently too. The bank managed to post a 5 percent year-on-year in increase in after-tax profits for 9MCY14, mainly on the back of strong top line growth. MCB happens to have a largely de-risked balance sheet, something which most banks would envy.
The strong performance at the top stemmed from the PIB bonanza, which is in no hurry to end anytime soon. MCB has invested heavily in government securities, mostly in PIBs - a reversal from the earlier trends of higher investments in treasury bills. It makes all the common sense too. PIBs are offering more than decent returns in double digits. Any bank would not want to miss the opportunity, of securing risk free return on sovereign papers.
The advances have remained sluggish for the same reason. Crowding out, less appetite or otherwise, it is no rocket science that banks would rather build assets on the safer side, especially when they offer returns as good as the most high profile corporate debt could, and that too risk free.
MCBs aggressive provision in yesteryears is also bearing the fruits. Provisioning reversals continue to boost the NIMs. The bank has made rigorous efforts towards recovery and the refined risk management strategy adopted has played its part in keeping NPLs in check. The infection and coverage ratio are both at healthy levels and moving in the right direction.
The very design of the deposit mix enables MCB to keep a good check on cost of deposits. Things are rosier at the liability side, with the CASA ratio of over 90 percent - by far the highest in the industry. Non-mark-up income continues to lend able support to bottomline. The P&L statement shows Rs1.2 billion recorded under the sub-head of other income, which looks like a one-off event. But it all adds to the profits. MCB seems to have ticked all the right boxes and there appears no urgent need for a shift in strategy. Should interest rates go down, the bank can cash on capital gains on PIBs. No wonder, the banks share at the bourses trade at a premium to the peers.

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MCB Bank Limited (Consolidated P&L)
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Rs (mn)                                 9MCY14     9MCY13     chg
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Markup Earned                           56,881     48,568     17%
Markup Expensed                         24,780     20,002     24%
Net Markup Income                       32,101     28,567     12%
Provisioning/(Reversal)                (1,406)    (1,845)    -24%
Net Markup Income after provisions      33,507     30,412     10%
Non Mark-up / Interest Income            9,857      8,831     12%
Operating Revenues                      43,364     39,243     11%
Non Mark-up / Interest Expenses         15,764     13,420     17%
Profit Before Taxation                  28,025     26,364      6%
Taxation                                 9,516      8,694      9%
Profit After Taxation                   18,509     17,670      5%
EPS (Rs)                                 16.56      15.83
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