MCB Bank announced its CY18 financial results yesterday, doling out another Rs4/share in final dividends – taking the full year dividend to Rs16/share. The bottom line shrunk by 3 percent year-on-year, mainly owing to higher effective tax rate as the bank had booked a tax provision reversal earlier in the year. In times of squeezed spreads, MCB has pulled off a more than decent financial performance – managing to increase the pre-tax profits by 3 percent year-on-year.
MCB managed to increase the top line in double digits, as the bank shifted its focus on shorter term assets, given the interest rate scenario. MCB’s gross mark-up on advances increased by Rs10 billion, on account of higher average volume of advances and a 92 percent average increase in earning yield over last year.
The bank’s balance sheet has continued to grow steadily and more importantly in the right direction. Keeping with the industry wide trend, MCB also shifted the investment mix to short term treasury bills from long term PIBs. The total investment portfolio increased by 14 percent – where the share of PIBs reduced by Rs95 billion, and that of the t-bills increased by a staggering Rs194 billion.
On the advances front, the growth was 7 percent over December 31, 2017, keeping the ADR stable at around 48 percent. On the liabilities front, the growth in deposit base was 8 percent over December 2017, as the bank’s deposits base crossed the trillion rupee mark. Recall that MCB’s deposit mix is one of the best in the industry, with a high CASA ratio in the 90s.
The non-core income continues to be a vital cog in the bigger picture – although it marginally slide year-on-year. Fee, commission and foreign exchange income yielded better results than last year – whereas a decline was witnessed on account of income on sale of securities. The bank has managed the bad loans rather well – and the NPLs were kept well in check – which are very adequately provided for with a coverage ratio of 88 percent.
The interest rate cycle seems to have peaked. The spreads may well be squeezed but MCB’s smart asset mix stands to yield desirable results going forward. Signs of economic slowdown are apparent in the country, and the advances growth may well be curtailed – but MCB’s strong and healthy balance sheet should give the shareholder enough cushion and comfort. Should things improve on the economic front, MCB appears well poised to cash in.