MCB Bank appears to be in a serious expansion mode these days. A look at recent news flow reveals that it has shown interest in acquiring a small bank in Kenya, and received permission to establish a wholly owned Islamic banking subsidiary and also for a wholesale branch in the UAE.

It also entered the mobile banking segment with the launch of MCB Lite last month.

Armed with over Rs746.5 billion in total assets, including a cash hoard of Rs58 billion by end-September 2013, the bank certainly has the resources to pursue ambitious expansion plans, and the track record of being able to raise capital. It also has the full might of the Nishat Group behind it.

These expansion plans are sure to come up for review as the bank’s board of directors meets tomorrow to discuss its annual accounts and consider any entitlements for shareholders.

Lending vs investment: An analysis of its recent financial performance shows that the bank followed its peers by over-investing in government papers. With banking spreads hitting their lowest in eight years in December and deposit rates linked with the SBP’s repo rate, it stands to reason that banks would need to find more lucrative avenues to park their money in order to keep their core incomes intact.

However, Zeeshan Afzal, an analyst at Topline Securities, pointed out that banks’ net lending to the private sector picked up pace in the July-December 2013 period. Whether MCB benefited from this in the last quarter remains to be seen.

“In 2HCY13, lending to the private sector rose by Rs321 billion to Rs3.7 trillion, against retirement of Rs124 billion in 1HCY13,” said Afzal. He added that “much of the incoming deposits [in the year] were utilised to reduce banks’ borrowing (repurchase agreements) burden”.

But MCB’s gross advances declined by 6.5 per cent to Rs245.3 billion in the January-September 2013 period (9MCY13), while its total advances went down by 6.4 per cent to Rs224.2 billion. Consequently, its advance-to-deposit ratio (ADR) worked out at 38.38 per cent, down from 44 per cent.

Meanwhile, the bank’s total investments rose to Rs405.07 billion, from Rs402.07 billion. Its investment-to-deposit (IDR) ratio came in at 69.33 per cent, down from 73.77 per cent, mainly due to relatively higher growth in deposits.

Deposit growth: MCB’s total deposits reached over Rs584 billion by end-September 2013, up around seven per cent from Rs545 billion by end-December 2012. That compares with the 5.5 per cent growth in the banking sector’s total deposits in the period, according to SBP data.

Its high-cost fixed deposits declined by a full 25 per cent to Rs60.43 billion. Savings accounts rose by 15 per cent to almost Rs309 billion, while current accounts jumped by 10.7 per cent to Rs202.8 billion.

MCB’s ratio of current and savings accounts (Casa) to total deposits for the period worked out at nearly 88 per cent, which the bank said was the highest in its history. It also attributed a 3.3 per cent drop in its interest expenses — which reached Rs19.98 billion by end-September — to its ‘strategic shift to low cost deposits’.

NPLs down: The bank said in its third quarter report that its’ non-performing loans (NPLs) declined by a net Rs626 million to Rs24.94 billion in the nine-month period. In fact, the bank managed to recover a significant Rs2 billion in advances classified in the ‘loss’ category, which allowed it to record a reversal of Rs1.86 billion in provisions.

Core performance: The lower advances coupled with relatively subdued lending rates during most of 2013 led the bank to post an 8.8 per cent decline in its net interest income (before provisions) in 9MCY13, which dipped to Rs28.49 billion. Its’ core income dropped by 6.6 per cent YoY to Rs48.47 billion.

But the bank countered this with a strong push to shore up its non-interest income, which rose by a healthy 23.3 per cent to Rs8.55 billion in the nine-month period.

Major improvements in gain on sale of securities (up 207 per cent to Rs2.1 billion) and other income (up 19 per cent to Rs316.6 million) contributed to this.

The bank also did a good job in controlling its non-interest expenses, which rose by a slight 2.3 per cent to Rs13.14 billion, despite the fact that it opened nine new branches in the period to extend its network to 1,179 local and nine foreign branches. MCB Bank posted an after-tax profit of Rs17.18 billion in 9MCY13, up nearly four per cent from Rs16.55 billion in 9MCY12. Its earnings-per-share worked out at Rs16.98, up from Rs16.36.

The bank declared a cash dividend of Rs3.5 per share with its third quarter results, bringing its total payout for the nine-month period to Rs10.5 per share.

The MCB stock — which has an over nine per cent weight in the KSE-100 Index — traded between Rs208.96 (January 1) and Rs281.17 per share (December 31) in CY13, and hit a high of Rs317.9 on June 13.