MCB Bank Limited (MCB)recorded a historic profit of Rs59.6 billion – while continuing with its rich history of high payout – announcing another Rs9/share as a final dividend, taking the CY23 dividend to Rs30/share. The after-tax profit grew a mammoth 82 percent year-on-year – largely on the back of a substantial increase in no and low-cost deposits coupled with an appreciable rise in non-funded income.

While the interest rates rose sharply in CY23 –MCB was well prepared with an adequate response in terms of deposit mix improvement. On the assets front, the entire growth was at the back of a continued increase in investments portfolio that went up 28 percent or Rs271 billion. This explains the 63 percent year-on-year jump in markup earned during the year – due to a volumetric rise in investments and a sharp rise in earning yields.

The rise in investments meant the advances portfolio went down considerably. The year gone by was marred by challenging macroeconomic conditions – and an Rs175 billion absolute drop in advances over last year is a good reflection. The advances to deposit ratio (ADR), as a result, slipped in the low 30s – down from over 50 percent a year ago, and at a multiyear low.

All this while, MCB’s already strong CASA went up another notch, a massive Rs180 billion growth over last year was recorded in average current deposits. The current deposit now constitutes over 50 percent of the total deposits – up nearly 8 percentage points from a year ago. The policy rate went up over 700 basis points in 2023 –but the domestic sot of deposits soared only 260 basis points – from 6.5 percent in 2022 to 9.1 percent in 2023.

MCB’s non-funded income provided support once again – registering an impressive 34 percent year-on-year growth. Fee and commission income made the largest contribution to non-interest income, followed by foreign exchange and dividend income. A massive loss on securities last year turned into a substantial profit in 2023 – assisting the non-funded income. The operating expenses were curtailed at a 27 percent year-on-year increase – a little shy of average inflation in CY23. The cost-to-income ratio, as a result, improved to a very impressive 29 percent – down from 37 percent in 2022.

On the NPL front, there was expected an increase as the infection ratio reached 8.6 percent – with a coverage of 82.7 percent. That said, MCB is very well-capitalized, and all risk and soundness indicators appear healthy. What’s in store for 2024 will be clear after the new government assumes charge and what becomes of the new IMF program. The monetary cycle may well have peaked, but the reversal could yet take another quarter – which may mean advances will continue taking the backseat. Advances or no advances - MCB shareholders could care less—as long as the profits (and dividends) keep coming.