Corporate results: MCB Bank makes Rs11 billion in six months

Sector focus shifts to trimming non-performing loans.

KARACHI:

MCB Bank has made profits of Rs11.33 billion during January to June 2011 on the back of bad loans shrinking to one-fourth.

Provisioning expense has fallen sharply by 81% to Rs400 million from Rs2.4 billion and emerges as the key profitability driver, said Global Securities analyst Syed Saquib Ali.

This decline is primarily from prudent management of the bank, as it has done subjective provisioning which is resulting in reversal and stagnation in non-performing loans, according to Arif Habib Research.

The 7% increase in bottom-line from the preceding period is in line with market estimates.

The board of directors meeting chaired by the country’s richest person Mian Mohammad Mansha on Tuesday also announced a dividend of Rs4 per share, taking the total payout to Rs7 per share. The payout ratio currently stands at 57% in the first six months, up from historical annual payout ratio of 50%.

The State Bank of Pakistan’s move to increase minimum rate on savings account from 5% to 6% in May has hit the bank’s net interest income – the bank’s core earnings – hard.

Net interest income declined by 6% to Rs20.9 billion during the period under review against Rs22.2 billion in the same period last year.

The bank has adopted a conservative strategy and channeled most of its growth in deposits towards investments particularly in government treasuries, according to BMA Capital.

As a result during the first quarter, the bank’s net advances to deposits ratio (ADR) dropped significantly 45% from 56% in the same period last year. The resultant slow down in non-performing loan accretion is expected to lead a whopping 87% decline in provisioning charge during the period under review. Additionally, having provided for 81% of its non-performing loans the banks asset quality is termed best among its peers.

Non-mark up income was a positive surprise, surpassing market estimates by 13% and depicting growth of 25% on higher fees and dividend income.

Non-mark up expenses stood at Rs5.2 billion during January to June 2012 compared with Rs4.2 billion in the same period last year.

The bank has booked capital gain on securities worth of Rs669 million and more than double dividend income of Rs797 million.

The result did not have much impact on the stock price as it fell Rs0.84 to close at Rs184.77 and followed its fellow peers during trade at the Karachi Stock Exchange. 16 of the total 23 banks listed on the stock exchange closed in the negative zone.

The stock has gained 51% in 2012 till date and outperformed the bourse by 22%. The stock received its latest boost from news that Mian Mohammad Mansha earlier this month said that he is keen to launch banking services in India.

According to an article published in The Economic Times, the State Bank of Pakistan is examining a proposal from MCB Bank to open at least three branches in Delhi, Mumbai and Amritsar.

Published in The Express Tribune, August 8^th, 2012.