It’s no fun being a bank right now. The consolidated bottom-line at each of the big-three private commercial banks – HBL, UBL and MCB – have taken a nosedive in the six-month period ended June 2018. To MCB’s credit, though, the slide, at 30 percent, hasn’t been as severe as HBL and UBL, who have watched their net profits halve in the period under review.

Let’s focus on the MCB Bank Limited, which is the holding company dominating the consolidated results (consolidated results include financials of MBC Islamic Bank MNET Services, and MCB-Arif Habib Savings & Investments, among other MCB subsidiaries).

On the back of higher interest rates in the period under review, MCB Bank managed to score a healthy, 12 percent growth in its ‘net mark-up income’. The fact that mark-up expenses still went down 5 percent year-on-year is a testament to the bank’s impressive, CASA-dominated deposit base that is the envy of other banks.

In the six-month period, the bank’s advances shot up by a percentage higher than its deposits, signifying the desire to cash in on higher interest rates before they become too exorbitant. Compared to December-end 2017, net advances grew by 9 percent and customers’ deposits expanded by 5 percent as of June-end 2018, taking the overall deposit base beyond Rs1 trillion marks. Roughly half of the Rs51 billion in new deposits landed into MCB’s current accounts, further strengthening the bank’s CASA ratio.

Higher reversals in this calendar year thus far – mainly on account of reversal in diminution of net investment – provided further boost to post-provision net mark-up income up the line. Beyond that, things slipped somewhat.

Much of the 10 percent dip in the bank’s pre-tax profits (consolidated: 11% dip) can be traced to two accounts. One is the sizable decline in ‘non-mark-up income’. This account was done in mainly by a marked decline in net gain on sale of securities and lower dividend income. The losses here more than offset the growth seen in the bank’s basic income streams like the fee, commission and brokerage income and income from foreign currency operations.

With operating revenue growth restricted to mere four percent year-on-year (consolidated: 5% growth), potential growth in pre-tax profits was compromised, courtesy a surge in non-mark-up expenses. Here, administrative expenses grew by more than 35 percent for the bank – by a whopping Rs4.38 billion in absolute terms. Part of that deviation is accounted by the fact that the bank has booked a pension liability of Rs1.9 billion – called “past service cost” – in compliance with an order passed by the apex court.

In the end, MCB Bank yielded just below ten billion in half-yearly profits. Even if one expunges the Rs2.175 billion tax-reversal that was booked in 2QCY17, the 1HCY18 net profits still have a declining effect.

Going forward, higher interest rates will pose a dilemma for the banking industry. On one hand, it will provide an opportunity to earn higher spreads. But on the other hand, it may increase the likelihood of NPLs on the banks’ books. MCB, however, is expected to fare better compared to the rest, thanks to its high CASA-deposit base and prudent lending practices.