Analyst Briefing: MCB to gain from lagged impact of asset repricing in next quarter as well

August 25, 2020 (MLN): MCB Bank Limited held its analyst briefing on Tuesday, wherein the management discussed and reviewed the bank’s latest financial performance, as well as the future outlook of the banking sector and the macro environment.

The event, which was organized by EFG Hermes, had the Chief Financial Officer of MCB Bank, Mr. Hammad Khalid, as the speaker and Murad Ansari of EFG Hermes as the moderator.   

To recall, the bank’s financial performance for the half-year ended on June 30, 2020, showed an increase in the net profits by 29.3% to Rs 13.47 billion, as compared to Rs 10.42 billion reaped in the corresponding period of last year. This was reflected in the bank’s earnings per share which also grew by the same percent from Rs 8.79 per share to Rs 11.33 per share.

The rise in profits of the bank was attributable to a surge in net interest income by 29.3% to Rs 38.25 billion, thanks to lagged impact of asset repricing.

According to a report by Foundation Securities, the management is anticipating an additional 100 bps reprising of deposits in the upcoming quarter, which is further likely to uplift the net interest income of the bank. However, the impact of current interest rates would start showing on the advances portfolio in the fourth quarter of the current year, resulting in normalized yields on interest income.

The management is also expecting the fee income to normalize in the upcoming quarters, as the non-interest income showed quick recovery during the month of July and reverted to pre-COVID-19 levels. The demand for credit is likely to be in single-digit after the economic recovery, the management added.

‘As of now, the bank does not see risk on the current asset from an infection point of view. However, few industries are likely to be impacted later on. On the other hand, construction related industry is expected to perform well in terms of loan demand. The management has already witnessed increased demand from cement, steel, and glass industries’, the report added.

MCB is also working on a product for the construction industry, keeping in view State Bank’s 5% loan book mandatory regulation to the sector. The details of the same will be shared with the public soon, the management said.

It was further informed that the bank has recovered nearly Rs. 5.3 billion from the NIB book out of the total Rs. 29.6 billion, i.e. nearly 18%. The bank, however, expects a swifter recovery in the second half of the year.

‘The bank has booked a general provision worth Rs. 4 billion during 1HCY20 to build a cushion against any possible NPL accretion going forward. However, the CFO stated that there are no particular segments in the book that pose any threat to asset quality. Coverage has been increased to 94% against 88% as of December 2019 and management is comfortable with current levels. Infection stands at 9.9% against 9.2% as of December 2019. A major increase in NPLs (Rs. 993 million) was on account of PKR devaluation impact on a foreign currency-denominated account’, a report by Arif Habib Limited said.

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Posted on: 2020-08-25T20:17:00+05:00