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MEBL - CY23 Analyst Briefing takeaways ,(AKD Off the Analyst's Desk Feb 22, 2024)

MEBL - CY23 Analyst Briefing takeaways

Meezan Bank Limited (MEBL) held its analyst briefing earlier today, where-in the management discussed the following:

• During CY23, MEBL's cost to income ratio dropped to 28.9% (vs 34.3% in CY22), while ROE increased to 56.3% for the year (vs. 44.6% in SPLY). Regarding capital adequacy, the total CAR strengthened to 22.39%, up from 18.42% at the close of the previous year.
• Bank added 42 new branches during the year, bringing total branch network size to 1,004. Moving forward, bank targets cost-to-income ratio to land between 35-40% for CY24.
• Bank vows to increase ADR to over 50% (44.7% in CY23) amidst applicability of ADR based tax during the current calendar year. Further, NPL coverage ratio presently stands at 179%, while infection ratio reduced to 1.7% during CY23. 
• Total deposits grew by 34%YoY to end the calendar year at PkR2.22tn, with CASA mix standing at 89%. Specifically, current-account account for 49% of the total, while the overall CASA mix stands at 89%. Looking ahead, the bank anticipates deposit growth of 18-20% during CY24.
• Regarding the interest rate outlook for CY24, bank expects first policy rate cut during 2HCY24. Additionally, lag in asset repricing once rates start to fall is expected to cushion the impact on net spreads for a certain period.
• Management plans to open 40-50 branches in CY24 (similar expansion trend in outgoing year), with a heightened focus on digital transformation process. Management expects opex to grow in tandem with the inflation of 20%.
• With implementation of IFRS-9 starting Jan'24, bank does not anticipate any adverse impact on profitability, as most aspects have already been taken into account. Regarding the bank's exposure to PIA, management stated that the exposure is nominal and has been largely accounted for.
• With regards to future payout strategy, the bank aims to expand its advances portfolio, which necessitates a healthy CAR (RWA's increase as advances grow). Consequently, the bank expects its payout strategy to remain consistent at around 40-50% during CY24.
• Bank’s fixed-rate investments constitute 82% of total investment book. Fixed rate book is currently yielding at 11%, while yields on variable investments range between 22-23%.
• Management commented that restructuring domestic debt are a concern, remains to be seen how the administration tackles it.
• Meezan Bank accounts for 26% of the inflows coming in through the RDA scheme.