MCB Bank Limited (MCB), true to its reputation and much to the shareholders’ delight, announced another interim dividend of Rs9/share, in addition to Rs18/share already announced in 1HCY24. The bank’s 9MCY24 after-tax profit grew another 10 percent year-on-year, to a record Rs48.4 billion. The playbook has not changed much from 1HCY24 and low and no cost deposits remain at the front and center of the profit story – ably supported by non-core income and other cost controls.
The asset composition remains heavily skewed towards investments, primarily in sovereign bonds and bills. Investments increased by Rs258 billion, exceeding Rs1.5 trillion – the highest in MCB’s history. The investment-to-deposit ratio stayed north of 70 percent – only marginally lower than June end levels – and 4 percentage points clear over December 2023. Whether the asset tilt towards investments is by choice or by default is left to interpretation – but the government’s borrowing appetite is here to stay – albeit with much-reduced vigor than in the recent past. This could lead to banks looking elsewhere to park the funds in the near to medium future. But for now, investments with the sovereign remain the preferred parking spot.
Advances too grew appreciably over December 2023 – indicative of a gradually recovering economy and interest rate reversal. The Rs102 billion uptick in gross advances over December 2023 still took the advanced-to-deposit ratio to only a lowly 33 percent, largely unchanged for much of 2024. The prospect of facing significantly higher effective tax rates in case of the ADRs being low on the cut-off date for December – expect some growth in ADR for 4QCY24.
On the liabilities front, the deposit base crossed the Rs2 trillion mark, - up a solid Rs259 billion or 14 percent from December 2023. MCB has stood out among peers in terms of deposit mix with a CASA ratio to be envois of and improved it further to a jaw-dropping 97.2 percent by September end 2024. The current deposits at Rs978 billion nearly constitute half of the deposit base – which is a remarkably high concentration of current accounts in total deposits. It is hardly a surprise the net interest income growth stayed strong, as MCB kept the cost of deposits under control.
In contrast with the industry trend, the NPLs were contained at Rs55 billion, and the infection ratio improved by over 1 percentage point from December 2023 staying in single digits, with the coverage ratio back in the 90s. MCB’s administrative expenses went up 16 percent year-on-year, amid a high inflationary scenario and continued investments in technology. The non-markup income continued to grow from strength to strength, registering an impressive 19 percent year-on-year growth, mainly on the back of fee commissions, branch banking, and investment services. The cost-to-income ratio stayed flat close to 31 percent, easily one of the best in the peer group.
What happens in 4QCY24 may be slightly different from the blueprint of 9MCY24 – in terms of both asset buildup and composition and deposit growth. MCB remains prudent on all solvency indicators and does not seem to have a blot on the balance sheet, even with the ADRs running near an all-time low. The shareholders have had a pretty good time feasting on the sovereign yields. A little break for a quarter would not matter much.