MCB bank managed to post a marginal growth in nine-month net profits as lower provisioning against bad loans weathered the bank from year-on-year decline in earnings, offsetting the sharp drop in advances and non-markup income in the third quarter.
Provisioning against NPLs, which virtually halved in the last quarter, indicates that the management is focused on cleaning the balance sheet than seeking high yielding assets as loans fell by 7 percent. Amid a significant decline in private sector credit, growth in advances has paused across the industry - but worrisomely MCB is losing its market share as well - down by 60 basis points over the quarter.
This implies that gross infectious ratio that soared by 96 bps in first half to 7.64 percent, may change its trajectory in the last quarter.
This argument is strengthened by slowing growth in industry's provisioning against bad loans in Jul-Sep period.
In the ongoing quarter with the revival in some textile export orders, one may see further improvement in the ratio of bad loans to total loans by the year end.
With the deposits stagnant, banks have been pouring all the surplus liquidity to support government fiscal borrowings. Tracking this trend, MCB's investments jumped by 23 percent where positions in government Treasury Bills increased by 29 percent in the last quarter.
This lowered its net mark up income on a quarterly basis; albeit it posted an increase of 10 percent in third quarter compared to last year. The better performance in previous quarters yielded a growth of 31 percent for the bank.
The slowdown in economic activities is visible from the bank's dismal performance in fee commission and other income which fell by 28 percent to erode the gains of low provisioning in this quarter. This trend - since the start of this year - has to be arrested if the bank wants to pave way for growth.
MCB has to have clear policy framework to penetrate more in trade activities and consumer banking as sizeable portion of consumer segment earnings stems from fee and other charges. Its attempt to buy RBS was a step in the right direction. However, with the deal running into bureaucratic snags, the bank still has to work aggressively on core banking business - exploring high yielding advances both in corporate and consumer banking and refocusing on innovative products to attain momentum in other income.
If the lender's management doesn't shift gears soon, the bank will keep on losing its strength of maintaining high return on equity. MCB's ROE has declined by 321 bps to 28.3 percent in last nine months; however, the onetime benefit of FSV to the tune of Rs1.9 per share amid lower bad loans might apply brakes to the falling ROE.
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MCB Profit and Loss accounts
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Rs (mn)
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3Q-09 3Q-08 Growth 9M-09 9M-08 Growth
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Mark-up earned 12,350 11,150 11% 38,289 28,085 36%
Mark-up expensed (3,830) (3,432) 12% (11,662) (7,780) 50%
Net mark-up Income 8,520 7,718 10% 26,627 20,305 31%
Provisioning (1,126) (760) 48% (5,127) (2,220) 131%
Net mark-up income
after provision 7,394 6,957 6% 21,500 18,084 19%
Non-markup income 1,183 1,640 28% - 3,924 4,493 -13%
Operating revenues 9,703 9,358 4% 30,551 24,798 23%
Non-markup expenses (2,613) (2,930) 11% - (7,771) (6,282) 24%
Profit before taxation 5,964 5,667 5% 17,653 16,296 8%
Profit after taxation 4,088 3,946 4% 11,805 11,623 2%
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EPS 5.86 5.71 17.08 11.11
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