MCB expects deposits to grow, policy rate to fall by 100bps

KARACHI: MCB Bank on Monday gave an update on its recent financials and bank outlook in a corporate briefing to investors via conference call.

MCB’s management expects the interest rate to be cut by a further 100 basis points, on top of the already 425 basis points the State Bank has implemented in the last two months, bringing the interest rate from 13.25pc to 9pc. This is in line with market expectations.

The bank had previously announced its financial statements for the first quarter on April 22. According to the financials, the bank’s profit after tax increased to Rs6.62 billion in the quarter ending March 2020, as compared to the Rs4.99 billion in the corresponding period last year, showing a growth of 33pc year-on-year. The bank’s earnings per share (EPS) clocked in at Rs5.6, which is an increase from the Rs4.2 during the same period last year.

Those results had been above analysts’ expectations.

The bank also announced an interim cash dividend of Rs5 per share. The bank’s management said that despite the State Bank of Pakistan announcing that the dividends to be suspended for the next quarters, it could get some leeway from the central bank, given the large capital buffer to absorb risks. March’s capital adequacy ratio stood at 18.41pc.

During the quarter, deposits increased by 3pc, compared to the last quarter. Similarly, investments fell by 12pc, while advances fell by 3pc. Still, the bank’s management maintained that it expects deposit growth of 10-11pc this year.

A higher proportion of savings accounts would support net interest margins in the near term, as deposits reprice immediately, while the repricing of advances would be gradual. However, the early repricing of agriculture, SME and self-employed consumers will not have a major impact, as they only make up a small proportion of the total portfolio.

The bank also said that capital gains are expected to be limited as interest rates are not expected to rise. Besides, the bank said it would prefer accrual income over capital gains.

The Pakistan investment bond (PIB) portfolio increased by Rs6.9 billion in December 2019 to Rs300 billion in March 2020, despite the maturity of Rs33 billion. The fixed PIB portfolio is around 80pc of the total portfolio. The weighted average yield of fixed PIBs was 12.5pc, while the weighted average yield of floating rate PIBs is 14.04pc.

Non-performing loans on a standalone basis increased to Rs49.9 billion in March 2020, from Rs49.4 billion in December 2019 due to currency devaluation. The bank’s management said that the impact of COVID-19 on non-performing loans will be visible from June 2021.

MCB also recovered 17pc from NIB’s non-performing portfolio, or around Rs5 billion, though it had initially set a target of 25pc for this time period. The bank had set a recovery target of 40pc by June 2020, but said that there might be delays due to the COVID-19 situation and macroeconomic conditions.

The bank said that the fee income has remained flat year-on-year, mostly due to the measures taken to combat COVID-19. MCB has closed 350 branches, or 25pc of its branch network. The State Bank has also cancelled Inter Bank Funds Transfer fees for customers, which has additionally compressed fee income growth.

MCB had started a cost control drive last year, which it said could be seen in its financial results this quarter, as administrative expenses remained flat year-on-year. But since around 80pc of administrative costs were fixed, it was unlikely that the lockdown due to COVID-19 would lower costs further.

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Meiryum Ali
The author is a member of the staff and can be reached at [email protected]
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