MCB Bank Limited (MCB) continued with the tradition of rich dividends to shareholders, announcing another Rs4/share as interim dividend, taking the year-to-date payout to Rs9/share. The Bank announced its half yearly financial results for 1HCY22, posting a sizeable 30 percent year-on-year increase in pretax profits. Effective tax rate increased across the industry, and in MCBs case – the taxation charge more than doubled from same period last year, taking the after-tax profits down by 25 percent year-on-year. The effective tax rate in 2QCY22 alone was 87 percent.

In challenging conditions of a volatile interest rate scenario, MCB remained focused on its low to no cost deposit growth strategy. Overall deposit base grew 13 percent, well above the industry growth of 9 percent. The growth in non-remunerative deposits clocked in at a heathy 21 percent. MCB continues to lead the way in terms of CASA ratio amongst peers, with a very strong 92.41 percent CASA – enabling it sail through rather challenging times better than a number of peers.

Positive variance on both volumetric asset expansion and interest rates led to higher markup earned. Non-core income grew appreciably year-on-year – with foreign exchange gain contributing most significantly, posting 195 percent growth over the same period last year. Remittances, fee, commission, and dividend income all grew appreciably from last year, for the non mark-up income to grow 36 percent year-on-year.

MCB managed to keep administrative expenses in check despite continuous branch network expansion, inflationary pressures, currency depreciation and significant technology investments. The cost to income ratio improved further from 42 percent in 1HCY21 to 38 percent in 1HCY22. The NPLs went down to Rs51 billion, bringing the infection ratio down to 9.98 percent, adequately provided for at 96 percent.

The biggest difference was made by reversal in provision charges of Rs2 billion, versus provisioning expense of Rs4 billion during the same period last year. The NPLs went down and there was a net provision reversal of Rs1.7 billion for the period. The infection ratio slid to 7.8 percent, adequately provided for, at near 87 percent.

The advances growth remained muted, as the ADR further slipped under 40 percent. With economic slowdown kicking in, aggressive credit appetite from the private sector may not be the flavor in the next two quarters. But there is always a hungrier borrower in federal government out there, and MCB may well see most of the asset mix continuing to be tilted towards sovereign papers.