MCB Bank Limited is the country's fourth largest commercial bank by assets. It was incorporated in 1947. MCB provides myriad banking facilities, with focus on four business segments:
--- Corporate finance
--- Retail and consumer banking
---- Trading and sales
---- Commercial banking.
Commercial banking is the major income generating segment, accounting for 44 percent of total income generated by MCB in CY10. The bank possesses assets worth Rs 630 billion according to its balance sheet (June 30, 2011) and boasts a branch network with 1134 locations. This includes 14 Islamic banking branches within Pakistan and 8 branches outside the country.
MCB eyeing expansion MCB is thriving on its low-cost deposit base. The bank's deposit base registered a CAGR of 13.47 percent during the past five years (2005-10); close to the industry's average of 14 percent.
Among top five banks, MCB's deposit base registered the highest growth rate of 17 percent in CY10 as compared to the group's average of 13 percent. The cherry on the top is that the bank enjoys the highest CASA ratio in the group of top five big banks. However, MCB's deposit base has surged by 15 percent to Rs 496 billion in the first six months of CY11. The bank's CASA ratio stood at 79 percent in 1HCY11.
Investments and advances: fifty-fifty With sovereign instruments paying lucrative risk free returns, the bank has massively stretched its investment portfolio in the past one and a half year.
The bank's investments base grew by a whopping 22 percent to Rs 260 billion in the first six months of CY11 and, nearly 56 percent from interest portfolio of around Rs 167 billion maintained at the end of CY09. This has lifted the bank's investment-to-deposit ratio (IDR) to 52 percent in 1HCY11 from around 49 percent in CY10 and 45 percent in CY09.
The bank's advances to deposits ratio also stood at 52 percent in 1HCY11. The bank's growing interest in government securities came at the expense of advances. This is clear from advances level, which inched up to Rs 260 billion in 1HCY11, a jump of 2 percent in the first six months of current year and around 3 percent from Rs 253 billion at the end of CY09.
Net-core income on the uphill With average Kibor on a higher level, together with massive growth in investments, the bank's top-line expanded by 24 percent to nearly Rs 33 billion in 1HCY11 over the same period a year earlier. The average 6-month Kibor stood at 13.73 percent in 1HCY11, nearly 140 bps higher than the corresponding period a year earlier. Investment income accounted for 37 percent of mark-up revenues in CY10, as compared to 27 percent in CY09.
In light of the growth in deposit base, the interest expenses surged by 22 percent to Rs 10 billion in 1HCY11 compared to the same period, a year earlier. But, the best part is that the bank's gross spread ratio improved by around 1 percentage point to 68 percent in 1HCY11 over the same period last year.
Non-core income at a fast clip Driven by a healthy rise in commission and brokerage income, income from dealing in foreign currencies and gain on sale of securities, non-mark-up income grew by around 40 percent to Rs 4 billion in 1HCY11 compared to the first six months of CY10. The fee, commission and brokerage income alone accounted for 66 percent of non-markup income in CY10.
Expansion engendering growth in expenses In its quest for improved market share, the bank has opted for expansion in its branch network amid a high inflationary environment which has raised MCB's expenses by 21 percent to Rs 7.7 billion in 1HCY11, year-on-year . The bank has added 53 new branches to its network in the past one and a half year, bringing the total network to 1,134 branches. In spite of growth in expenses, the bank's income to expense ratio improved slightly, to 3.4 times in 1HCY11 from 3.2 times corresponding period a year earlier.
Non-performing loans performing better Non-performing loans surged by about 3.5 percent to Rs 25.4 billion in the first six months of CY11. However, the bank's infection ratio remained stagnant at 9 percent. Around 94 percent of total toxic loans belong to loss category in 1HCY11. In consideration of ageing of non-performing loans, total provisions held increased to Rs 21 billion as of 30, June 2011 from Rs 18.5 billion in CY10. As the level of advances stayed unchanged; increase in provisioning cost has hauled up coverage ratio to 86 percent in 1HCY11 from around 80 percent in CY10.
Profitability The bank has reported a 33 percent year-on-year jump in its profitability to Rs 10.5 billion in 1HCY11, which was largely in line with market expectations. The recent performance reflects MCB's history in miniature. MCB rewarded its shareholders with Rs 3 per share dividend in 2QCY11; bringing the total dividend payout to Rs 6 per share in the first six months of CY11.
PACRA's view The rating agency has maintained the long-term and short term ratings of MCB at "AA+" and "A1+", respectively. This reflects low credit risk due to the bank's strong capacity to meet its financial commitments. "The ratings reflect MCB's strong financial profile mainly emanating from its sound liquidity, solid capitalisation, and robust profitability. The bank, while following a cautious lending strategy, has maintained good asset quality. The ratings factor in the bank's strong market position, characterised by its established brand, and extensive branch network equipped with requisite technology infrastructure. This benefits the bank in maintaining a low cost deposit base as compared to its peers", states PACRA.
Share price performance Despite improving profitability; MCB has underperformed the KSE-100 index. The bank's stock price fell by around 18 percent in the first seven months of CY11 when KSE-100 index witnessed a jump of 1.5 percent. Analysts relate falling prices of banking scripts to investors' growing interest in dividend paying stocks, such as fertiliser, oil and gas, and power companies. Besides, part of the blame goes to heavy selling by foreigners.
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MCB BANK
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Key Statistics Rs(mn) 1HCY11 2010 2009 2008 2007 2006 2005
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Deposits 496,206 431,372 367,605 330,182 292,098 257,462 229,342
Investments 260,204 213,061 167,134 96,632 113,089 63,486 69,481
Advances 259,974 254,552 253,249 262,135 218,961 198,239 180,323
NPLs 25,422 24,544 23,239 18,269 10,725 8,571 8,396
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Key ratios
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Gross Spread (%) 68 67 69 71 75 82 84
Income/ expense ratio (times) 3.4 3.3 3.8 4.1 5.1 4.0 3.1
ROE(%) N/A 25.9 27.4 31.5 37.7 45.0 64.9
ROA (%) N/A 3.1 3.3 3.6 4.1 3.8 3.2
EPS after tax (Rs) 12.6 22.2 20.4 20.2 20.1 16.0 11.7
ADR (%) 52 59 69 79 75 77 79
Infection ratio (%) 9.0 9.0 8.6 6.7 4.7 4.1 4.5
Coverage Ratio(%) 86 77 67 54 68 69 66
Number of branches (no.) 1134 1,132 1,081 1,060 1,026 994 952
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Source: Company accounts & BR Research.
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