MCB Bank Limited (MCB) posted another quarter of stellar p the pretax profits jumped 41 percent year-on-year, continuing with its rich payout history, announcing the first interim dividend of Rs9/share. The playbook for the banking sector in general, and big banks in particular has been rather simple of late. Advances have gone down, investments have stayed up, and the focus has shifted to low-cost deposit growth and cost controls. It is nothing short of remarkable that MCB, during what have been the toughest 15-18 months, has posted some of its best quarterly profits.
Asset growth was slow over December 2023 but grew appreciably over 1QCY23 – mainly on the back of investments. Investments portfolio grew by a massive 36 percent over 1QCY23, as the government’s borrowing appetite continued unabated. Advances on the other hand, went down 8 percent over 1QCY23, as the private sector shied away on account of the economic slowdown exacerbated by a high inflationary environment and record high interest rates. The investment and advances growth over December 2023 remained moderate at 3 and 4 percent, respectively.
Such is the retreat in private sector credit demand, that MCB’s advances to deposit ratio (ADR) slid to 33 percent – much like the end of CY23, but considerably lower than the 43 percent ADR reported for the end of 1QCY23. That didn’t stop from registering a rather impressive 27 percent year-on-year growth in net markup income.
On the liabilities front, the deposit base expanded to Rs1.85 trillion – up 20 percent from 1QCY23. The average current deposit growth was an impressive 13 percent year-on-year, as MCB continued to bank on its favorable deposit mix. The CASA ratio in the 90s is comfortably the highest among peers. Domestic cost of deposits inched up by 3.5 percentage points – despite a substantial increase in the average policy rate from last year.
The NPLs increased a little from last year to Rs55.4 billion, but there are no alarm bells as the infection ratio stayed at 8.6 percent, with an impressive coverage of 92.7 percent. MCB maintained strong cost control, limiting the administrative expense growth to 19 percent year-on-year– well below the average inflation. Non-mark-up income exhibited 54 percent year-on-year growth led by fee and foreign exchange income. The cost-to-income ratio, as a result, improved further from 32.8 percent in the same period last year to 29.5 percent during 1QCY24.
A lot will depend on the contours of the new IMF program and the expected reversal in the monetary policy cycle - that will set the tone for FY25. The economy, particularly the industrial sector, is still reeling from high costs and reduced competitiveness owing to a variety of factors, and a mere reduction in interest rates is unlikely to spur credit demand soon. That said, advances have not been at the core of the sector’s strong profitability growth – and MCB is likely to continue on the profitability path.
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