MCB Bank announced its 9MCY18 financial results, accompanied with yet another interim cash dividend of Rs4 per share. This was in addition to Rs8 per share already paid in dividends. The top-line growth remained satisfactory, but the same could not translate into bottom-line growth for a variety of reasons – of which tax provision reversal to the tune of Rs3.59 billion is a big component.
On the business end of affairs, MCB Bank’s balance sheet continues to growth healthily and in the right direction. With higher interest rates, there has been an industry wide visible shift in asset mix composition and MCB was no exception – going light on investments and increasing the advances portfolio. The earning yields have increased from last year, and MCB’s highest industry CASA ratio continues to support the gross spread ratio.
MCB saw a marked decline in the investment portfolio, as it channeled most of the incremental deposits towards higher yield advances. The ADR stayed close to 48 percent, but there was a significant drop in the investment to deposit ratio from near 68 percent in December 2017, to just 44 percent. It is after quite a significant while, that a leading bank’s asset composition has higher share of advances in absolute terms. The banks finally seem to be banking – as the interest rate cycle moved up.
The earning yields on advances went up by a considerable 49 bps year-on-year, whereas that on investments was up by 5 bps. This goes on to explain why MCB’s asset mix now looks more tilted towards advances, for all the good reasons. The bank’s loan book is one of the cleanest amongst peers, with a high coverage ratio of 93.2 percent, and an infection ratio of 8.8 percent. The deposit growth has been healthy, as the size crossed Rs1 trillion mark earlier in the year, and MCB’s highest CASA ratio in the industry continues to improve further, standing at 92.46 by September 2017 end.
The non-core income continues to provide an able hand to the bottom-line. That said, the capital gain part of the non-core income was the telling factor in 15 percent year-on-year drop in non mark-up income. The contribution from fee, commission and brokerage income remained strong, on the other hand. Administrative expenses went up by a similar percentage, taking the pre-tax profits down by 10 percent year-on-year. According to the bank’s press release, “administrative expenses include one-off expense of Rs1.90 billion on account of past service cost based on actuarial valuation of pension cost payable as per Honourable Supreme Court’s order.”
Things are looking up for the banking sector. MCB Bank seems well poised to cash on improving yields. A likely increase in construction related activities and housing loans presents MCB with an opportunity to be more active in the quarters to come.
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