HALF yearly earnings of the MCB Bank failed to keep up with the broader profitability trend depicted by other banks so far.

However, its core side of the business performed well, with the overall dip in bottom line largely a result of subdued non-mark-up earnings and lower provisioning reversals.

The bank reported unconsolidated after-tax earnings of Rs11.7bn for the six months ending June 30 (1HCY14), down a marginal 1.6pc from Rs11.89bn in 1HCY13. Its earnings-per-share (eps) worked out at Rs10.54, against Rs10.68 last year. It announced an interim cash dividend of Rs3.5 per share (35pc), taking its total payout so far this year to Rs6.5 per share (65pc).

Credit growth of the bank reportedly outpaced that of its peers in the six months till June, with major corporate loans going towards commodity, telecom and transport sectors

On a consolidated basis, the bank and its subsidiaries posted an after-tax profit of Rs11.8bn (eps: Rs10.59), down 3.3pc from last year.

Core income of the bank registered a healthy rise of 14pc to reach Rs37.57bn by June 30. KASB Securities analyst Farid Aliani attributed this to an increase of 88 basis points in yields on its investments, due to a shift towards Pakistan Investment Bonds (PIBs) from Treasury bills.

“On the investment side, the PIB position rose by a further Rs44bn in the second quarter, taking total PIBs to Rs276bn, against Rs108bn [by] December 2013.” Net investments of the bank declined by roughly Rs1bn to Rs444.4bn.

In a note previewing the result announcement, Iqbal Dinani at BMA Capital wrote that MCB is likely to be a big beneficiary of the government’s recent debt re-profiling, given that it “accumulated Rs231.5bn of PIBs (36.9pc of deposits) in the first quarter, [against] other big banks’ average (of 16.2pc of deposits)”.

On the other hand, MCB Bank’s net advances rose by 14.5pc to Rs284.1bn. KASB’s Aliani claimed that the bank’s “credit growth outpaced [that of] the industry during 1HCY14, with gross advances rising by 13pc, driven by corporate loans in commodity, telecom and transport sectors”.

Deposit growth: The bank’s deposit base expanded by 8.5pc to reach Rs685.8bn during the period. A big rise of 23.5pc in current accounts to Rs255.5bn, coupled with a modest 2pc hike in savings accounts to Rs356.4bn, helped the bank limit the rise in interest expenses to Rs16.1bn. As a result, its net interest income grew by 14pc to reach Rs21.4bn.

However, some of the rise in current accounts might be seasonal, given that customers generally divert funds from savings accounts to current accounts to avoid mandatory Zakat reduction; Ramazan started in the month of June this year. High-cost fixed deposits, meanwhile, declined by nearly 6pc to Rs57bn.

“Although the bank operates with one of the lowest [ratios of] fixed deposits to total deposits, its share of savings accounts (around 57pc of total deposits in 1QCY14) is significantly higher than peer banks,” Ameet Daulat, an analyst at Taurus Securities, had cautioned in an earlier research note. MCB’s ratio of savings deposits to total deposits had since fallen to around 52pc by end-June.

The bank also managed to reduce its non-performing loans by 5.2pc to Rs22.1bn, improving its NPL ratio to 7.3pc from 8.7pc at end-December 2013, according to the analyst.

This allowed the bank to reverse provisions against NPLs to Rs939.2m in 1HCY14; however, these were lower than reversals of Rs1.28bn in 1HCY13. It also reversed provisions against toxic investments by Rs40.75m, against a reversal of Rs34.77m last year.

Non-interest income: The bank’s non-core performance in 1HCY14 fell slightly over last year’s levels, mainly owing to a big 59.5pc drop in capital gains, which clocked in at Rs628.5m. Dividend income also dropped 11.5pc to Rs448.8m.

However, income from forex dealings more than doubled to Rs750.3m, while fee-based income registered an increase of 4.2pc to reach Rs3.4bn. Total non-core income of the bank dipped 6.6pc to around Rs5.5bn.

Regarding the drop, Aliani said, “The management has explained that the SBP has mandated that third party transaction cost recoveries be restricted to actuals (no spread allowed), resulting in restriction of certain revenue streams”.

MCB Bank also failed to keep its non-interest expenses in check, as they rose 21.8pc to Rs10.1bn. The hike in administrative expenses — at 20.5pc to Rs9.6bn — outpaced inflation. The bank did not open any new branches during this six-month period.

Islamic banking segment: MCB had announced in January its decision to form a separate Islamic banking subsidiary, with a paid-up capital of Rs10bn.

Nonetheless, its Islamic banking assets dropped 18.2pc to Rs13.38m in 1HCY14. Both Shariah-compliant investments and financing declined during the period. However, the segment’s after-tax profit went up to around Rs189.2m from Rs175.3m last year.

MCB’s stock of par value Rs10 has virtually stayed unchanged at Rs285 per share on a year-to-date basis, but has fluctuated between a high of Rs311 and a low of Rs235.9 per share till last Wednesday, a swing of nearly 32pc.

Published in Dawn, Economic & Business, August 25th, 2014