MCB Bank Limited (MCB) made its mark on the global stage with the issuance of GDRs worth 150 million dollars, which were heavily oversubscribed.
This was the first GDR offering in over ten years that made MCB the first ever in the history of the country to be listed on the London Stock Exchange for trading on the Professional Securities Market.
The above statement sums up MCB's singular achievement proudly reported by the Directors to the Members and rightly so. Trading in the GDRs on the London Stock Exchange had commenced on October 18, 2006.
MCB has issued 8,622,100 GDRs each representing four ordinary equity shares at an offer price of US $17.3970 per GDR (total receipts being US $149.999 million). Accordingly, based on an exchange rate of Rs 60.70=US $1.00, MCB issued 34,488,400 ordinary equity shares of nominal value of Rs 10 each at a premium of Rs 254 per ordinary equity share (total premium amount being Rs 8.760 billion).
MCB, a banking company incorporated in Pakistan, is providing commercial banking and related services in the country and overseas. The bank is already listed on all the stock exchanges in Pakistan. The bank operates 988 branches including six Islamic banking branches (2005: 947 branches including five Islamic banking branches) within Pakistan and six branches (2005:five branches) outside the country (including the EPZ branch, Karachi), through 14,930 employees including 5,751 outsourced (2005: 12,638 employees including 2,963 outsourced). Pacra through its notification in May 2006, has assigned long term credit rating of "AA+" (double AA Plus) and short term credit rating of "A1+" (A one plus) to the bank.
MCB Bank has four wholly-owned subsidiaries. The present Overview of financial statements, however, is that of MCB alone, without consolidation with its subsidiary companies. Adamjee Insurance Company Limited and First Women Bank Limited are associate companies.
Authorised capital of MCB is Rs 6.5 billion, comprising 650 million shares of Rs 10 each. As on December 31, 2006 the paid up capital was Rs 5.463 billion which was held by 45,606 shareholders. Total paid up capital include 34,488,400 shares representing the shares equivalent GDRs issued during the year under review. Holding by the general public was over 27% of the total shares. The Directors, CEO and Children owned nearly 5% shares while over 7% shares were owned by the associated companies. Foreign companies own over 18% of the shares. Remaining shares were distributed among a number of corporate entities including banks and DFIs.
Total assets of MCB increased by 15% to Rs 342 billion on December 31, 2006 compared to Rs 299 billion on December 31, 2005. Increase has occurred in Lending to Financial Institutions (111%) and Advances (10%). Apart from injection of fresh equity and retention of profits, the increase in assets has been financed through 12% increase in Deposits to Rs 257 billion (75% of Total Assets) on December 31, 2006 compared to Rs 229 billion (77% of TA) on December 31, 2005. Total equity has nearly doubled to Rs 35.656 billion compared to Rs 18.310 billion at end of previous year. In percentage terms total equity has increased to 11.4% of total Assets as on December 31, 2006 compared to 6.1% at December 31, 2005.
MCB's Total Equity including Subordinated Loans and Surplus on Revaluation of Assets works out to 12.41% of Total Assets as on December 31, 2006 (2005: 8.48%). This level of equity offers credibility to the bank. According to note 43 to the financial statements, Capital Adequacy Ratio of the bank on December 31, 2006 was 18.65% (2005: 12.54%) as against prescribed minimum equivalent to 8% of the risk weighted assets of the banking company.
MCB's Advances on December 31, 2006 at Rs 198 billion were 58% of Total Assets (2005: 60% of TA). On this date, gross NPLs are Rs 8.571 billion (2005: Rs 8.396 billion). In percentage terms gross NPLs are 4.1% of gross Advances (2005: 4.5% of GA), against which provision has been made as required. The level of NPLs is relatively low but MCB management must not lower its guard because quite a few doubtful loans have the tendency to stay under cover for sometime due to different reasons. MCB management should remain vigilant in appraisal, approval, documentation, disbursement and monitoring of all loans. Further, MCB with its large branch network might also be exposed to various risks particularly operational risks against which internal controls may be carefully monitored.
Total mark up income for the year ended December 31, 2006 increased by 45% to Rs 25.778 billion compared to Rs 17.756 billion for the previous year. Total mark up expense represented only 18% of total mark up income for the year under review (2005: 16%). This translates into Gross Spread Ratio of 82% for 2006 (2005: 84%). Relatively very low payout to the common depositors could be the main factor for high profitability of the bank. MCB's leadership, claiming steering the customers through new waves of success, and SBP are urged to consider linking the minimum return to common depositors to Kibor or official inflation rate.
The year 2006 was closed with After-Tax Profit at Rs 12.142 billion, registering an increase of 36% over previous year's profit at Rs 8.922 billion. ROE at 29.7% (2005: 37.6%) is impressive. The Board has recommended final dividend at 15% in the form of bonus issue and 15% cash dividend. This is in addition to 60% interim cash dividends announced during the year. Performance statistics are given below.
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Performance Statistics (Audited) (Rs million)
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Balance Sheet (As on December. 31,) 2006 2005
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Total Assets: 342,108 298,781
Cash, balances with banks: 39,043 25,132
Investments-Net: 63,486 69,481
Advances- Net: 198,239 180,322
Borrowing from fin. Institutions: 23,943 27,378
Deposits, other accounts: 257,462 229,342
Total Liabilities: 301,264 275,047
Net Assets: 40,844 23,734
Share Capital: 5,463 4,265
Reserves & Un-app. Profit: 30,193 14,045
Equity: 35,656 18,310
Surplus on Revalue, Assets: 5,188 5,424
Total Equity incl. Revalue Surplus: 40,844 23,734
Advances- Gross: 206,847 188,139
Gross NPLs: 8,571 8,396
Total Provision: 8,608 7,817
Conting. & Commitments: 162,274 81,856
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Ratios: 2006 2,005
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Cash & bank/Total Assets: 11% 8%
Investments/Total Assets: 19% 23%
Advance - Net/Total Assets: 58% 60%
NPLs/Advances - Gross: 4.1% 4.5%
Provision for NPLs/Advances - Gross 4.2% 4.2%
Deposits/Total Assets: 75% 77%
Total Liabilities/Total Assets: 88% 92%
Equity/Total Assets: 10% 6%
Equity incl. R. Surplus/Total Asset 11.9% 7.9%
Deposits/Equity incl. R.Surplus-Tim 6.30 9.66
Advances/Deposits: 77% 79%
Investments/Deposits: 25% 30%
Conting.& Comm./Equity - Times: 3.97 3.45
Book Value (incl. R.Sur.)/Share - R 74.76 55.65
KSE Price/Share (29-06-07) Rs: 365.00 -
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Income Statement (Y end December 31,): 2006 2005
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Markup - interest earned: 25,778 17,756
Markup - interest expensed: 4,525 2,781
Net Markup - interest income: 21,253 14,975
Provisions and write offs: 1,183 1,144
Net mark up income (aft. Prov.): 20,070 13,831
Total non-markup income: 4,991 5,753
Income bef. Admn. Exp.: 25,061 19,584
Admin Expenses, etc: 6,560 6,565
Profit before Taxation: 18,501 13,019
Current & deferred tax: 6,359 4,097
Profit after taxation: 12,142 8,922
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Ratios: (Annual Basis): 2006 2005
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Markup earned/ Total Assets: 7.5% 5.9%
Net Markup Income/TA: 6.2% 5.0%
Net markup (aft. Prov.)/TA: 5.9% 4.6%
Non-Markup Income/TA: 1.5% 1.9%
Income before AE/TA: 7.3% 6.6%
Admin Expenses/TA: 1.9% 2.2%
Profit before Taxation/TA: 5.4% 4.4%
Profit after taxation/TA: 3.5% 3.0%
Profit after tax/Total Equity: 29.7% 37.6%
EPS - (year-end paid up) - Rs: 22.23 20.92
Price/Earning Ratio: 16.42 -
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Cash flow Summary: 2006 2005
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Net Cash flow, Operations: 3,475 -2,445
Net Cash flow, Investing: 4,821 -1,814
Net Cash flow, financing: 5,616 -155
Change in Net Liquidity*: 13,911 -4,416
Net Liquidity at beginning*: 25,132 29,548
Net Liquidity at end: 39,043 25,132
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