MCB Bank Limited (MCB) rounded off a stellar CY20 with a final cash dividend of Rs15/share, taking the full-year payout to Rs20/share. The pre-tax profits soared by 20 percent year-on-year to highest-ever, despite challenging circumstances for most of the first half. The earning asset base expanded by 16 percent over December 2019 to Rs1.76 trillion, and that is what kept the topline going despite significant drop in the interest rates.

The bottomline growth was a combination of factors that included uplift in economic activities in the last two quarters, asset reprofiling, better duration management of the asset portfolio, and tight control on administrative expenses. The asset mix shifted drastically during the year, more by design than by choice, as the private sector was not exactly brimming with credit demand for most part of CY20.

The advances portfolio decreased by Rs26 billion over December 2019, taking the ADR down to the mid-30s. That said, there was an uptick observed in the last quarter of CY20, where the bank saw advances jump by Rs20 billion.

The preferred parking lot once again remained the government securities as the investment portfolio jumped by a massive Rs267 billion, registering a 36 percent increase over December 2019. Within the investment portfolio, consistent reprofiling and duration management kept MCB honest, and that helped the bank register only a meager decline in markup earned despite significant reduction in earning yields.

The deposit front saw remarkable growth, as the deposit base grew by over 13 percent over December 2019 to Rs1.29 trillion. The current account mix further improved to 38 percent of total deposits, and the CASA ratio went up to as high as 93 percent. Recall that MCB already boasts of one of the best CASA ratio in the industry, which is well-reflected in its cost of deposits, which are lower than its peers.

The non-core income provided an ever-reliable able hand, primarily led by gain on sale of securities. There was a slight decrease noted in the fee and commission income, which is understandable given the slowdown in economic activities during the lockdown period. The fee and commission income is returning to near normal levels, as activities have picked pace. The bank puts the increase in non-markup income primarily to proactive duration management amidst evolving yield curve expectations. The gain on sale of securities nearly quadrupled year-on-year to Rs3.3 billion.

MCB continues with its exemplary control on non-interest expenses despite inflationary pressures, investment in technology infrastructure, and branch network expansion. The cost to income ratio further improved to 37 percent in CY20 from 43 percent last year. In line with the prudent approach, MCB made room for provision charges to insulate itself from potential risk asset quality down the road.

The NPLs increased by Rs1.77 billion on account of subjective classification on prudent basis by the bank. The infection ratio stands at 9.97 percent, which is more than adequately provided for with a coverage of 99 percent. MCB seems to have its bases well covered and appears well-poised to be back in the lending business with more vigor as Pakistan’s economy comes back on track.