MCB Bank Limited

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Dear Clients,

MCB Bank Limited (MCB) held its conference call today to discuss financial performance of 1QCY21 and provide an outlook on the bank’s plans. MCB posted PAT of PKR 7.1bn (EPS: PKR 5.9, up 7% YoY) as against PKR 6.9bn (EPS: PKR 5.7) in SPLY. The result was above street consensus on account of reversal in provisioning and higher than anticipated fee income.

Key takeaways

– MCB Bank registered a deposit growth of 11% YoY clocking in at PKR 1.3tn. Current account deposits rose 20% YoY and saving account deposits increased 7% YoY. CASA mix of the bank arrived at 93.13% as opposed to 92.09% in SPLY

– MCB’s deposit based market share slightly deteriorated to 7.05% in 1QCY21 as against 7.55% in 1QCY20

– NFI increased by 22% YoY mainly on account of i) 16% YoY growth in fee income, ii) capital  gains of PKR 367mn, and iii) 74% YoY jump in dividend income.

– To highlight, MCB recorded provisioning reversal of PKR 213mn that lent further support to the bottom-line as opposed to an expense of PKR 742mn SPLY

– MCB’s ROE and ROA clocked in at to 17.35% and 1.54% in 1QCY21, respectively as opposed to 17.88% and 1.7% in corresponding period last year

– The bank has been able to maintain CAR of 20.11% in 1QCY21 above the requirement of 11.50%

– MCB’s investment portfolio comprises T-Bills (PKR 615bn yielding 7.3%) and PIBs (PKR 417bn yielding 9.9%) having a share of 56% and 38%, respectively. PIB floaters comprise 42% of the PIB investments and the rest is fixed. As per the management, 74% of the T-Bills are under 3 months category

– During 1QCY21, the coverage ratio for the bank remained flat at 98.13% and infection ratio increased to 10.79% as opposed to 9.97% SPLY

– The cost to income ratio deteriorated to 43.5% as opposed to 40.9% in 1QCY20

– We have an Outperform rating on MCB with a target price of PKR 215/sh. The stock offers a dividend yield of 12% and is currently trading at a one year forward PB of 1.02x.


1. Why did the ADR slip to 37–38% in 1QCY21 as against the management’s guidance of 42-43% for CY21? Is there any revision in ADR target?

The dip in ADR is attributed to seasonal financing from corporate sector and it would pick up in the next 3 quarters to 42-43% in-line with the initial guidance.

2. When is the interest rate hike expected?

Interest rate hike would be seen in 2HCY21 starting from Jul’21 with a cumulative hike of 100-150bps.

3. What is the composition of floaters in investment book?

PIB floaters comprise 42% (yielding 7.6%) of the PIB investments and the rest is fixed. The share of PIB floaters have increased from 17% in Mar’19.

4. Is there going to be a compression in NIMs going forward?

The bank does not see any compression in NIMs with the growing focus in CA base. The management plans to increase the CA mix in coming years.

5. What are the growth targets of advances and deposits for CY21?

MCB is expecting a growth of 12-13% in deposits and 15-16% in advances.

6. When would TSA and IFRS-9 be implemented?

There is no update on IFRS-9 and none of the banks have accounted for it in 1QCY21. With regards to TSA, it would be implemented in a phased manner.

7. Is the guidance of PKR 2.0bn provisioning reversal in CY21 intact?

Yes, this still holds as the bank has prudently accounted for both subjective and general provisioning in CY20.

8. What is the update on recovery with regards to NIB’s portfolio?

The bank has so far recovered 21% amounting to PKR 6.18bn as of Mar’21.

9. Is the growth in fee income sustainable?

During 1QCY21, fee income increased by 16% YoY and would sustain in the remaining year. The management is expecting a growth of 20% YoY in CY21.

KASB Research

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