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MCB CY23 Analyst Briefing takeaways, (AKD Off the Analyst's Desk Feb 28, 2024)

MCB CY23 Analyst Briefing takeaways

MCB Bank Ltd (MCB) held its analyst briefing earlier today, where-in the management discussed the following:

• Regarding return of the ADR-based tax in CY24, management expressed that building a robust loan book during these macroeconomic times would be challenging.
• With regards to dividend payout policy, management stated that profits are retained to the extent of maintaining the bank's leverage ratio. Future distributions are expected to increase in line with the growth in profitability.
• There is a negative carry with regards to the spread b/w OMO and secondary market T-Bill yields. Management expects treasury yields to modestly rise if policy rate remains unchanged in the next MPC meeting, hence this may present an arbitrage scenario when financing the GoP’s funding requirements.
• Within the PIB investment book, bank holds 73% of floater PIBs, while 23% are fixed. Maturity amounting to PkR75-76bn is expected by 3QCY24. Overall, most of investment book is concentrated in short-term floating rate notes. Further, management indicated that results for 1QCY24 are expected to reflect 90-95% of repriced credit book.
• Regarding higher effective taxes during the final quarter (4QCY23 ETR: 58%), management stated that additional windfall tax of PkR3.46bn on FX income contributed to the increases. Industry has obtained a stay-order regarding this, however, MCB continues to book it on a prudent basis.
• Management reported that bank’s exposure to certain SME based NPL’s resulted in subjective provisions and subsequent downgrades to the said loans. Management remains comfortable with the current risk appetite on hand.
• Bank continues to focus on enhancing current account base to 55% of the deposit base (vs. 51% in CY23). This is in response to the negative carry on its saving deposit base, as the yields on investments and advances remain below the regulated MDR.
• Management anticipates currency devaluation during latter part of the year, as a flexible FX rate is a key requirement under the IMF program. Further, management expects interest rates to decline by 200-300bps during 2HCY24.
• With regards to implementation of IFRS-9, management anticipates PkR8.5bn to be transferred to general reserve from retained earnings. Further, any future charges in the P&L would be subject to assessments of the financial position under the requirements of the model.
• Management expects opex to grow by 18-20% during CY24, in-line with inflation.
• Bank anticipates expanding its Islamic Banking window by 60-70 branches this year.