MCB Bank Limited Sees Soaring Profits Driven by Low Deposit Costs
MCB Bank Limited has reported an outstanding 122 percent year-on-year increase in after-tax profits, with a history of generous dividends. Their strategy involves a strong CASA ratio, controlled deposit costs, and significant investments in high-yield government securities. The bank's success is underscored by its low cost of deposits, a strong current-to-total deposit ratio, and efficient cost management. Although advances to the private sector decreased, the bank's profitability remains strong, with well-maintained asset quality. Despite government policies, the future looks promising for MCB and the banking industry in Pakistan.
Business Recorder 
ISLAMABAD: The financial sector in Pakistan continues to bask in the glow of remarkable profitability, with MCB Bank Limited (MCB) reporting its 9MCY23 financial results. The bank has delivered an astonishing 122 percent year-on-year surge in after-tax profits, marking a historic achievement. To celebrate this impressive performance, MCB has declared an interim cash dividend of Rs8 per share, bringing the year-to-date payout to Rs21 per share, aligning with the bank's tradition of generous dividends.
The recipe for MCB's remarkable profit growth remains consistent. The bank takes pride in having one of the highest CASA (Current Account and Savings Account) ratios in the industry. Furthermore, it consistently enhances its deposit mix, making it particularly advantageous in an environment of rising interest rates. The bulk of these increased deposits find a home in sovereign high-yield government securities, typically leading to a decline in advances to the private sector. This strategy results in improved gross spreads, controlled deposit costs due to a substantial increase in low to no-cost deposits, a healthy return on government securities, and steady growth in cross-selling, all contributing to impressive profitability.
Average domestic current deposits have experienced a staggering 30 percent year-on-year growth.
These deposits added additional Rs190 billion to the bank's overall deposits. During this period, the average current-to-total deposit ratio reached 51.5 percent, an increase of more than 10 percentage points compared to the same period last year. This essentially means that the bank doesn't need to offer returns on over half of its deposit base. It's noteworthy that the average cost of deposits for MCB was a mere 8.6 percent during the period, which is an increase of only 260 basis points from the previous year. This cost containment, even in the face of a significant rise in overall interest rates, underscores MCB's success in driving profitability through controlled deposit costs.
On the asset side, MCB responded to deteriorating macroeconomic indicators by reallocating assets, increasing its exposure to government treasury bills and Pakistan Investment Bonds (PIBs). Net investments witnessed a robust 29 percent growth compared to December 2022, pushing the Investment-Deposit ratio to a remarkable 73 percent. However, on the advances front, there was a 20 percent decrease compared to December 2022, with advances decreasing by Rs152 billion. Consequently, the Advances-to-Deposits Ratio (ADR) dropped to as low as 35 percent, representing a decrease of more than 19 percentage points from the ADR in excess of 54 percent at the end of December 2022.
Regarding expenses, MCB efficiently managed administrative costs, keeping them well within the general inflationary trend. This improved the cost-to-income ratio significantly to an impressive 29 percent, marking an 8-percentage-point improvement compared to the same period in the previous year. The bank also maintained the quality of its assets and made adequate provisions, evident by an infection ratio of 8.4 percent and a coverage ratio of 83 percent.
In conclusion, the banking industry in Pakistan, especially the larger players like MCB, seems to thrive despite government policies, including super taxes. The economic conditions have inadvertently contributed to record profits. There is no indication of a significant deviation from this trend in the foreseeable future, which, understandably, has not raised any concerns.
